Mozambique is on the cusp of general and presidential elections that could drastically change the face of the political scene in the country – but whatever the outcome of the polls, the growing band of foreign investors circling the country are unlikely to be deterred.
Frelimo, the party that in its former incarnation as a liberation movement led the country to independence from Portuguese colonial rule almost 40 years ago, has ruled Mozambique ever since and is almost certain to remain in power. It could, however, fall short of an overall majority in parliament for the first time – and some expect the elections to see the Mozambique Democratic Movement (MDM), a relatively new party, emerge as the major rival to Frelimo, replacing former rebel fighters Renamo as the principal opposition.
Despite promising showings at the elections in 1994 and 1999, Renamo has struggled to transform itself into a political power and this election could see it consigned to the history books for good. In the past two years it has revived its paramilitary campaign, but in August this year it signed a new peace agreement with Frelimo that could yet see it leave a positive legacy in the country it helped damaged so much in the country’s civil war in the 1970s and ’80s.
Omar Mitha, former chief economist of Millennium bim, Mozambique's biggest bank, and now an independent consultant, says the government made significant concessions to get the agreement – realising that, despite Frelimo’s history as a communist party, providing a secure environment for foreign investors now has to be a top priority.
“2012 was a high water mark for foreign direct investment into Mozambique”, says Mr Mitha, with $5.5bn coming in from outside. A drop-off in investment has meant “the government had to go to the table and agree to some Renamo demands like foreign observers of the peace deal,” he says.
The deal has seen international observers brought in to oversee not just the elections but also the reshaping of the country's armed forces to include members from both sides of the former conflict.
At the same time, the rise of MDM has broken the two-party domination of the political scene. Leader Daviz Simango is now expected by some to poll higher than Afonso Dhlakama, the leader of Renamo, in October's presidential elections. Moreover, if MDM can build on its promising successes in last November's municipal elections, Frelimo could fall short of an outright majority in the country's parliament. This would mean it is not just a rubber stamp for the president, which will almost certainly be Frelimo's candidate Filipe Nyusi.
Much of the residual risk is around what Renamo might do following the elections. “If the peace agreement has given hope to Renamo supporters about the group's prospects in the upcoming October elections, they are likely to be disappointed,” says Raza Agha, chief Africa economist for global investment company VTB Capital. A return to violence should not be ruled out in that case, though Mr Agha notes that could push the group deeper into political obscurity as there is little appetite among the population for a return to civil war.
The uncertainty is not putting off outside investors, however. Luke Havemann, a Johannesburg-based oil and gas specialist at the largest African law firm, ENS Africa, says interest in Mozambique is undimmed. “We're seeing an increase in interest from foreign investors, both in the extractive industries and also in building the infrastructure that Mozambique will need to be able effectively to exploit its natural resources.”
Mohit Arora, former head of Capital Pros Network, a US-based corporate finance adviser, says “foreign investors have not been deterred by the political uncertainty at all. Momentum is even greater than last year, it seems to me.”
Mr Arora, who used to head up Standard Bank's agribusiness sector in sub-Saharan Africa and now helps overseas investors into Africa, tends to shun the extractive industries for more labour-intensive manufacturing and agriculture. He accepts that given the scale of the country’s gas and coal reserves, 'Dutch disease' is “clearly a possibility”, but says Mozambique has a few years now ahead of it before gas exports become a reality.
“Even as a banker I preferred manufacturing which emphasises labour over capital”, says Mr Arora, arguing that “once you hire a lot of people, you get another kind of collateral. If a deal has a lot of workers, politicians hesitate to cause problems.”
Indian investors into Mozambique have needed to hire more workers than they might have elsewhere, says Mr Arora, but Mozambicans are “willing to learn and quick learners. Over time, companies have overcome productivity issues.”