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Comment > Opinion >

Turning ore into profit — for us

A smelting plant in Mozambique shows what is wrong with investment in Africa, says Tim Jones

JUBILEE DEBT CAMPAIGN

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Subsidised: the Mozal plant, seen from a nearby graveyard

Credit: JUBILEE DEBT CAMPAIGN

Subsidised: the Mozal plant, seen from a nearby graveyard

AN ALUMINIUM smelter has been operating in Mozambique for the past ten years, taking the country's electricity to produce metal used in European and Japanese cars and aeroplanes. The profits, however, are benefiting foreign investors far more than anyone in Mozambique.

The smelter, known as Mozal, after the company that owns it, is immense. Sited near the capital, Maputo, it is responsible for 30 per cent of the country's exports, and uses 45 per cent of the electricity generated there. But I estimate that only $200 million of its $1200-million annual revenue enters the Mozambican economy. And of this, just $15 million goes to the Mozambican government.

I started investigating Mozal because the British Government, through UK Export Finance, has previously backed loans to the project. I quickly found that groups in the area, such as Justica Ambiental (Friends of the Earth Mozambique), have been protesting against pollution from the smelter.

In 2010 and 2011, exhaust fumes from the factory were released directly to the atmosphere without being treated, including hydrogen fluoride, sulphur dioxide, nitrogen dioxide, and ozone. Treating fluoride pollutants and sulphur dioxide was a requirement of the smelter's environmental-impact assessment.

Justica Ambiental and other groups gathered about 15,000 signatures calling on the Mozambique parliament to force the company to stop polluting, to no avail.

DOCUMENTS from complaints lodged with the World Bank about the pollution showed that the UK government was just one of many public funders. The World Bank, the European Investment Bank, and the governments of South Africa, Japan, France, Germany, and Canada have all helped to finance the smelter. In total, half the cost of building Mozal came from, or was guaranteed by, public institutions.

Given this level of institutional support, you would have expected to see strong benefits for the people of Mozambique. Extremely generous exemptions from taxes on profit and VAT were given, however. The only tax paid is a one-per-cent turnover tax, which averages at an estimated $12 million a year.

As well as UK Export Finance, CDC (formerly the Commonwealth Development Corporation, the British Government's development-finance institution) has also funded Mozal. CDC is an official body that funds private-sector projects to aid development. For several years, however, most of its money has been given to private-equity funds, which are free to use them to make profit out of whatever they like, including in some instances, Nigerian shopping malls (Comment, 30 November).

In Mozal's case, CDC lent $53 million in the late 1990s and early 2000s. A number of freedom-of-information requests eventually revealed that it has been repaid $88 million in interest, plus the original loan amount in full, at an average interest rate of 15.6 per cent.

I estimate that all the public funders together have made an average of $120 million a year out of the smelter - eight times more than the government of Mozambique.

The other main financiers of the plant are the private investors, BHP Billiton, which owns 47 per cent of it, and Mitsubishi, which owns 25 per cent. BHP Billiton reports on its profits from Mozal, which have averaged $114 million a year between 2005/06 and 2011/12 - seven times more than the Mozambican government.

In total, I estimate that for every $1 being paid by the smelter to the Mozambican government, $21 has left the country in profit or interest to foreign governments and investors.

THERE is more. The production of aluminium requires a great deal of electricity, generally accounting for up to one third of the cost of production. In Mozal's case, it appears to be far less. Documents I obtained from UK Export Finance under Freedom of Information Act requests reveal that Mozal obtains its electricity at a fixed rate that is five times less than that of an average resident in Mozambique.

In fact, the average resident in Mozambique doesn't have electricity - just 12 per cent have access to it. Put simply, the power used by Mozal could be used elsewhere.

MOZAMBIQUE is being presented as one of the success stories of Africa. Annual growth rates of six and seven per cent have caused the economy to double between 1998 and 2010. This growth is partly thanks to Mozal, as well as a host of other mega-projects extracting resources such as gas and coal. But in that time, according to the World Bank, the number of people living on less than $2 a day has actually increased from 15.2 million in 1996 to 18.3 million in 2008 (the latest year for which figures are available).

I am angry that the smelter pays so little in tax and so little for electricity. I am appalled that the British Government, and many others, backed this project with its outrageous terms.

Justine Greening and others can make some recompense, by giving back the excessive money made out of the smelter, and supporting a renegotiation which makes Mozal pay more tax.

For the time being, however, in the words of the director of Justica Ambiental, Anabela Lemos, the World Bank and other investors such as the UK "continue to support corporate abuse in developing countries under the disguise of 'development'. Mozal consumes more electricity than the entire population of Mozambique! As for social benefits, we are still waiting for them, but we are already feeling the impacts of the uncontrolled pollution of our air and water."

Most worryingly, Mozal may be a symbol of the shining future for development in Mozambique and across Africa. The real question is, for whom is the future shining, and who is left in the shadows?

Tim Jones is Senior Policy and Campaigns Officer at the Jubilee Debt Campaign.

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