(2016-01-18) The International Monetary Fund (IMF) estimates that by the middle of the next decade half of Mozambique’s GDP will come from natural gas, although recommending a cautious approach given the industry’s sensitivity to international conditions.
“In the mid-2020s, half of the production in the country will be generated by natural gas, but the tax revenues from the projects will remain moderate until then because of the depreciation costs of gas liquefaction plants,” write the IMF experts in a long-term analysis of the Mozambican economy.
The production of natural gas will have a brutal impact on the country, with the IMF to anticipate that “the average real GDP growth between 2021 and 2025 could reach 24%, which means that” the percentage of liquefied natural gas (LNG) projects in Mozambique’s nominal production may exceed 50% in the mid-2020s. ”
These extremely high growth rates will not, however, be maintained for long. “Once LNG production peaks in 2028, with the start of the final operation, real GDP growth should drop to 3 to 4 percent, a prediction that assumes an increase of 6 to 6.5 percent in the non-gas economy and no further increase in the LNG industry, which means that the contribution of gas to the expansion of total GDP will start to decline gradually at the end of the 2020s.”
The IMF estimates, however, are not without risks, not only in the international situation, but also in the posture of the executive, to whom caution is recommended.
“Despite the tremendous economic potential of the projects, fiscal and macroeconomic implications are very sensitive to developments in raw material prices in international markets and other risk factors, underlining the need for government authorities to opt for a cautious approach,” the IMF experts recommend.
In the document, which reviews the main developments in this important sector for the economic development of the country, the IMF says that “operators remain confident in the profitability of medium-term projects, although there are more risks if prices continue to fall”.
The Fund anticipates that “the production and export of liquefied natural gas will begin in 2021, with production gradually increasing during this decade”, peaking in 2028 with an average production of 89 million tons per year.
The great increase in production from the next decade onwards will have an impact on tax revenues. The IMF projects that these could reach 500 billion dollars by 2045. “The main sources of revenue come from the Government’s share in the gas profits, taxes charged to dealers, and dividends paid by the National Hydrocarbon Company.”
The IMF warns, however, that profits will not be made in the early years of production, given the need for companies to recoup their investment, and also notes that “it is important that the authorities are aware of this period’s gas production and revenue collection streams from this sector, which could be worth more than half of the total, in planning their budgetary medium-term strategy”.
The IMF forecasts are subject to great uncertainty, starting with the time-line, leading technicians to warn that “several risk factors can change these projections significantly in the long term”.
Among the factors that could change forecasts, the IMF lists the gas selling price and the possible postponement of final investment decisions planned for this summer. The fiscal stability promised to companies may also be compromised by changes in the structure of businesses resulting from ongoing negotiations. Finally, the IMF states that “long-term economic growth may be compromised if the revenues from gas projects are not adequately managed” to boost economic growth outside the sector.
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