The mining multinationals in Mozambique: Is it a win-win situation?

By Antonio Macheve Jr

The generic stories of multinational companies extracting natural resources from poor resource-rich countries often maintain a strong emphasis on exploitation of cheap labour, environmental degradation, poor local economic and social development, and unresponsive corporate social responsibility policies as the most direct effects of such operations on the population, particularly around the communities where the multinationals operate. The aforementioned factors, independently or combined, undoubtedly apply to various cases of extractive activities conducted across the world.

But in evaluating the impact of such projects on ordinary people in a given area, one must acknowledge that mining companies take bold risks during investment phases, sometimes multibillion gambles. It is equally vital to evaluate who reaps the benefits of the projects in the long term, the people? The company? Or is it a win-win situation?

The Brazilian coal mining company Vale is investing heavily in the mining town of Moatize in the northwest of Mozambique. Vale is among the largest mining companies in the world. As of 2010, Vale was the second most valuable mining company in the world, worth $169 billion. Vale was granted a 35-year mining concession by the government of Mozambique to explore coal in the Moatize district, the largest reserve of untapped coal in the world. While it is expected that these mining activities may be tremendously lucrative for the companies in the long term, the multinationals are still in the investment phase. Like any other investment in the business sphere, their activities in Moatize come with huge costs.

For example, Vale has invested nearly $8 billion in the project, with approximately $2 billion in its first phase, another $2 billion in its second phase, and nearly $4 billion in supporting infrastructure and logistics, including revamping the 916km-long Nacala railway and the Sena railway, connecting the mining plants in Moatize to the Nacala and Beira seaports respectively. These investments will allow for 11 million tonnes of coal in exports per year in the first phase and 22 million in the second phase, as opposed to the annual 560 000 tonnes that Mozambique was able to export in the 1970s through the state-owned mining company Carbomoc, at its peak.

Also, part of Vale’s social spending in Mozambique includes the building of two resettlements for more than a 1000 families, technical training of locals in construction and engineering, vocational training and capacity-building for small and medium enterprises, the rehabilitation of two health clinics, and the building of sports fields and leisure complexes.

If the operation is to fail, these astronomical investments will have gone down the drain. For example, in the instance of a civil war in Mozambique, operations could be paralysed indefinitely. In 2013, Rio Tinto, one of the mining companies operating in Moatize, suspended its activities after Renamo militants blocked the Sena railway. If such an event is to happen at a larger scale, the repercussions could be dire for the companies. Also, one has to consider that one day of missed exports to India and China presents substantial losses for the companies. It is also uncertain how long it will take for companies like Vale to break even.

On the other hand, one must consider that coal is in high demand in emerging economies like China and India. Therefore, clientele is not necessarily an issue for the mining companies. What’s more, it is also important to consider that these $8 billion invested have been spent over the course of the past eight years (since 2006) and the company has a 35-year concession, which gives it much time to make unconceivable profits in the future. Under the mining contract between Vale and the government and Mozambique, the state charges a low 3% in royalties, and out of the profits, the government stated that a meagre 2.5% would be invested in the communities surrounding the mining plants.

It is also not yet clear whether the economy at large will seriously benefit from this booming industry, and whether the exploration of natural resources in Mozambique will create wealth for the people or a few wealthy people.

Taking these factors into consideration, are these companies struggling with these large investments and facing serious risks? Or will they make huge profits in the long term while ordinary Mozambicans watch large monies flowing out of the country?

Antonio Macheve Jr is a 2013 Mandela Rhodes Scholar and is pursuing his MPhil in development studies at the University of Cape Town.