At the start of the last decade, Mozambique’s prospects looked bright. After the early 1990s, when peace finally came after a devastating and protracted armed conflict, this vast southern African country could enjoy a period of sustained rapid growth and poverty reduction.

Mozambique was a darling of the international development community, receiving significant direct support from the government budget, and investment opportunities in the natural resources sector looked promising.

By 2016, much of that shine had been lost. This was in part due to an economic crisis heralded by the discovery of illegal debts contracted by newly formed state corporations. Ultimately, these appeared to have been designed to enrich a small political elite and their collaborators abroad. And that has led international donors to freeze much of their support.

But growing debts were not the only challenge. By the early 2010s, prospects for the coal sector – which, according to conservative assumptions, were now expected to generate $ 1 billion in annual government revenue – had been reduced. Rio Tinto’s exit in 2014, with a loss to the company of more than US $ 3 billion, was indicative.

Fast forward to the present day. The macroeconomics has stabilized somewhat. Yet little of the promise of 10 years ago has been kept. Even though the massive inflows of private investment continued, real economic growth fell sharply. Poverty and other indicators of deprivation also remained stubbornly high.

And serious conflicts have erupted, especially in the north of the country. An estimated 700,000 people – or 2% of the country’s population – have been internally displaced as a result of the conflict.

Significant investments in the natural gas sector have been delayed or reduced. And the biggest potential investment, by the French giant Total, has now been suspended indefinitely (even permanently), citing security concerns.

The Covid-19 has only added to the list of complex and protracted challenges facing the country.

In short, Mozambique has had a difficult decade. It is time to recognize that the development strategy of this period did not bear fruit.

Drawing lesson

Some lessons emerge as to why Mozambique’s recent development trajectory has fallen short of expectations. These are relevant to avoid further mistakes. They also serve as a warning to other low-income countries that rely heavily on large-scale foreign direct investment.

Three lessons stand out:

Don’t Believe the Hype: A consistent and defining feature of the engagement of foreign companies in Mozambique’s natural resource sector has been their tendency to make extremely optimistic predictions of their own success. One example is Rio Tinto, which proclaimed in 2011 that its recently acquired operations in Mozambique represented “the world’s largest underdeveloped maritime coking coal”.

Projected project timelines have been consistently very optimistic, suggesting that government production and revenues will be brought up to speed quickly, to the benefit of all parties. Sadly, as the U.S. Securities and Exchange Commission complaint against Rio Tinto executives notes:

Realities on the ground in Mozambique quickly undermined {their optimistic narrative}.

International partners and government officials often sang the same tune. Indeed, the debt sustainability assessment of the International Monetary Fund in 2015 predicted that new liquefied natural gas (LNG) production would begin as early as 2021. And that it would result in annual growth rates of 50% in value. of exports.

Likewise, Mozambique’s presentation in 2016 to commercial creditors suggested that new LNG production should be commissioned as early as 2022/23, generating double-digit real GDP growth. Suddenly, the country’s external debt problems would be solved.

These projections were extremely optimistic.

Of course, hindsight has obvious advantages. But overly bullish forecasts, which are then used as key assumptions to forecast future macroeconomic viability, have been repeated over and over.

Foreign investment is a means, not an end: The theme of investing in natural resources has dominated political discussions in Mozambique for the past decade. Moving these projects forward has often seemed to be the only goal, automatically ensuring that Mozambique becomes a middle-income country, perhaps even the “Qatar of Africa”.

Unfortunately, the emerging macroeconomic challenges have only reinforced the importance of finalizing these investments. The IMF’s message is clear:

Ensuring that LNG production materializes remains important to supporting Mozambique’s long-term debt sustainability.

But investments in natural resources in low-income countries have rarely yielded widespread development gains. As the experiences of Nigeria and Angola show, the benefits are often extremely limited and captured by a small elite. At worst, the distorting effects can undermine competitiveness in the rest of the economy, leaving the poorest even poorer.

Arguably, some of these effects have already been apparent in Mozambique. Millions of dollars have been poured into the capital, fueling multiple high-end real estate investments. No dividend for the poor has yet emerged. And public investment collapsed.

The more general lesson is that it is never easy to manage large-scale private investments so that they produce large-scale (inclusive) development gains.

At a minimum, alongside real political will, it requires a proactive upgrading of state capacity. This includes the strengthening of institutions and the quality of economic governance. Without it, weaknesses are easily exploited for the private benefit of corrupt local businesses and factions.

Don’t forget the poor: The flip side of the emphasis on investment in natural resources has been the lack of attention to other sectors, as well as increasingly unbalanced regional and rural-urban development models. A pronounced north-south gradient has been evident in a range of socio-economic outcomes for decades. But the imbalance has worsened in recent years.

Many commentators suggest that current conflicts, especially in the north, directly reflect these growing inequalities. The lesson is that increasing inequalities, especially in countries like Mozambique where nation-building remains a work in progress, can pose a very serious threat to development success.

What happens next?

In addition to the immediate cessation of the conflict, Mozambique needs a coherent set of policies, not projects, based on a clear vision for the development of the country as a whole.

These cannot be formulated from the luxury of air-conditioned offices in Maputo, Brussels or Washington. Without a true understanding of the complexities of “realities on the ground,” including weaknesses in state capacity and political dynamics, past mistakes are likely to be repeated. It is fundamental to listen to poor communities, to learn from local successes and to build a common – but realistic – vision of the future.

That takes time. Delegating it to outside consultants or political apparatchiks will be a recipe for failure.

But the process of building a vision of inclusive development also represents an opportunity – to strengthen the capacities of the state as well as to renew the fragile social pact of today.

Nurturing the engines of economic growth outside the natural resource sector will be essential for long-term development and sustainability. In their absence, it may not be so bad if some natural resources remain in the ground.

Sam jones, researcher, World Institute for Development Economics Research (UNU-WIDER), United Nations University and Finn Tarp, Professor of Economics, University of Copenhagen

This article is republished from The Conversation under a Creative Commons license. Read the original article.