Mozambique, the Biofund, and Moving towards Post-Extractive Economies: Reflections on the Nature of Wealth - and the Wealth of Natures

" Ladies and Gentlemen, Distinguished Guests, Colleagues

When Adam Smith released his Inquiry into the Nature and Causes of the Wealth of Nations in 1776 - an auspicious year for those of us raised in the "New World" - he and his contemporaries were just beginning to get a glimpse of how industrialization and productivity gains would forever change our lives.  What he intuited - but was far too ahead of his time to realize - is that the basis of wealth came from our inherited endowments, and their ability to produce wealth and prosperity into the future depends very much on how these resources are stewarded and managed.

The Resource Frontier - an Unlimited Source of Wealth?

Nowhere is this more clear than in the case of extractive industries or those that benefit from unseen and often undervalued ecosystem services, such as forestry, agriculture, or fisheries.   As with many well endowed frontier economies, wealth was at our fingertips - and we harvested.  Particularly in my country - the United States - with a seemingly endless frontier of resources, and idea grew that if you worked hard and fast enough, prosperity was within reach. 

The Illusion of Growth

Yet much of the wealth - or more precisely, economic growth - produced by liquidating the frontier resources was an illusion.  Because rather than creating value or new sources of wealth, much of what happened was merely liquidating one form of wealth for another - say, natural capital for physical or financial capital.  With our relentless focus on GDP growth and current income - both hugely important but not necessarily sufficient to guide a nation on stewarding its wealth - we often missed the big picture of how our larger portfolio of wealth and assets were being stewarded and managed.

Net Savings, Inclusive Wealth

The difference between economic growth and actual wealth creation becomes clear when one considers how stocks of wealth are being converted into income and growth in transactions.  Exports of mineral resources, for example, will create growth but not necessarily jobs and income multipliers; because of the highly capital intensive nature of much extractive activities, and because of largely vertical value chains, it quite likely that the growth produced by mining and extractives will tend to have highly concentrated benefits and low multipliers.  And, if the benefits accruing to the state are not reinvested in human or productive infrastructure, then growth will be a short term phenomenon and overall wealth will be decreased.

UNEP recently released its report on Inclusive Wealth Accounting, which looks at overall stocks of wealth and how they are managed.  It provided some very sobering data:  some countries, such as Nigeria, are growing at high rates of GDP; but are decreasing overall wealth.  Some, like China, are growing at high rates, depleting natural capital but reinvesting in human and physical capital.  So, whether growth is an illusion or is actually contributing to inclusive wealth depends on the quality of growth and how the capital stocks are being reinvested as natural capital is drawn down.

Zoom to Mozambique

Consider the case of Mozambique - with which you all are much more familiar than I.  The role of extractives in producing economic growth is still quite large - it is a primary economy, meaning that much of its GDP derives from mining, agriculture, fisheries and forests.  Given its stocks of natural capital, Mozambique is a wealthy country.  But, the question is how to tap that natural wealth and convert it into better livelihoods and quality of life for its people.  The question is how to grow inclusively, creating new jobs and employment, creating the skill sets needed for a post-extractive economy.  And the question is how to do this in a sustainable manner, so that growth is not an illusion.

The Role of Biofund

Enter the Biofund, a financial mechanism for ensuring that key natural areas in Mozambique are maintained in perpetuity. 

Let us not underestimate the value of these natural areas or their contributions to the economy and wealth portfolio of the country.  As a largely rural country reliant on farming, the water provisioning and ecosystem services provided by natural areas is huge - and usually, largely unseen.  As Pavan Sukhdev, Study Leader of the Economics of Ecosystems and Biodiversity or TEEB as it is known has said, it is the "economic invisibility of nature" that leads us to often undervalue or underestimate the true contributions of services to our economy and well-being.

The Biofund will ensure that these key natural areas will continue providing ecosystem and biodiversity services well into the future, underpinning a strategy of wise use of natural resources and a deliberate and rational approach to converting Mozambique's extraordinary endowment of natural wealth into greater human well-being and sustained and inclusive economic growth.

Links to Mozambique's Green Growth Strategy

And here I am comforted by knowing that Mozambique, with its key partners like WWF, UNEP and others, has developed and refined a strong roadmap and strategy for making its economy green and inclusive.  Not overnight.  Not by freezing investment or blocking access to its mineral resources.  But by putting the wise use and value that can be derived from exploiting them into a wider plan for creating sustainability into the long term, and a roadmap for managing what the ILO has called a "just transition."

Embarking on this transition requires courage, leadership and vision.  The newly created and approved five year plan marks a good step forward, highlighting the role of sustainable use of natural resources and linking back to the green economy roadmap and strategy.

And, the Biofund can play a key part in this wealth management strategy.  Since it is geared towards maintaining the integrity and good functioning of key natural sites in the country, it can be seen as a "piggy bank" for natural capital.  A vehicle for ensuring that ecosystem services and biodiversity are conserved and contributing to human well-being and the economy well into the future.

How can this be paid for?  Well, I am privileged to bear witness today, with you all, to the launch of the fund - which is in itself a milestone.  Yet look farther ahead, and you realize that funds of this type have a key role to play in the future wealth creation and management of the country.   Because as key mineral and renewable natural resources are used and drawn down, the Biofund becomes a way to ensure that the savings and overall stock of wealth is not depleted.  In other words, it can become a transfer vehicle  or hedging device to ensure that windfall gains from natural resource use are not lost, but reinvested.   That economic growth does not become just an illusion.

And the way to do this is to explore new fiscal instruments that can both enhance the transparency and efficiency of how "resource rents" from mineral extraction are derived and reinvested.

For example, it is easily conceivable that in auctioning off access to new natural gas or mineral resources, a small fraction of the royalties - and I am talking about a fraction of a percent - are folded back into the Biofund to ensure that current windfalls are also put to work securing the future sustainability of key ecosystems in the country.

"Faro" - Leadership in a Sea of Darkness

Ladies and Gentlemen, let me conclude with a metaphor, one that is obvious but also perhaps appropriate to Maputo, a city on the edge of the ocean and home to ocean-goers for many centuries if not millennia.

When navigating the waters of economic necessity and growth options, external shocks and pressing domestic needs, it can often seem dark and lonely.   Scary even, as the pressing social realities of underemployment, health and educational needs beckon for immediate attention.

But step back and think to the future.  Imagine the Mozambique you want to live in 20 or 30 years from now.  Imagine a Mozambique where human development needs are met, and the wealth of the country has been well managed, to create a diversified and vibrant economy.  Imagine what the energy, agriculture and service and knowledge industries will look like.  

And keep that in your mind, because that is the destination that will define what a truly green and inclusive economy will look like. 

This the "Faro" - a light  on the edge of the ocean, marking the destination and safe harbor.  

From there, working backwards to the present, begins the transition.  The five year plan, the green growth strategy, the Biofund - all these become tools to better manage and enhance the great natural wealth of Mozambique.

The nature of wealth - the wealth of nature.   These are within reach for Mozambique, and Mozambique can take a leading role on the international stage in showing what leadership looks like. 

To show what is possible when country becomes a beacon of light for others in times of turbulence.

Mozambique, the Biofund, and the wealth of Nature - it is all within your grasp. 

And I wish you an excellent journey.