The decision by the Australian multinational South32 to register an impairment of $372 million (MZN 23.9 billion) at the Mozal aluminum smelter has exposed the vulnerabilities of Mozambique’s economy and raised the specter of a possible shutdown of the country’s largest manufacturing industry if competitive energy tariffs are not ensured after March 2026.
Opened in 2000, Mozal is not just a smelter; it represents the state’s bet on attracting major foreign investments in the post-war period. Over 25 years, it has established itself as the country’s main aluminum exporter, contributing on average 3% of GDP and up to 30% of national exports. Additionally, it accounts for roughly 40% of the country’s manufacturing output, making it a pillar of the industrial sector. However, its continued presence in the country is now in question.
Economic Weight and Risks of Closure
To analyze the potential impact of a possible closure, DE consulted economists, who offered differing viewpoints. According to Egas Daniel, the closure would have “devastating” effects, not only due to the immediate loss of exports and foreign currency revenues but also due to the contraction across the supply chain. “We are talking about hundreds of national SMEs providing logistics, maintenance, catering, and security services. If Mozal closes, many of these companies will lose their main client and have no way to survive,” he explained.
The impact would also be felt in the labor market, with a rise in unemployment. Daniel noted that Mozal pays, on average, around MZN 1 billion ($15.6 million) in taxes per year—a modest amount relative to the state’s needs but significant given high public debt and budget constraints. One potential solution in the event of closure would be to export the 1,000 MW of electricity currently supplying the factory. Neighboring countries such as South Africa, Zambia, and Zimbabwe face chronic energy deficits and could absorb this surplus, generating new foreign revenue for Mozambique.
Criticism of the Megaproject Model
However, Gabriel Manguele, economist at the Center for Democracy and Development (CDD), offers a different perspective. For him, Mozal has always functioned as an economic enclave, poorly integrated into the national economy. “All the wealth generated is expatriated. Mozal benefits from tax exemptions and can transfer up to 100% of its export revenues. The country retains virtually nothing,” he said. Manguele emphasized that industrialization policy has failed to leverage Mozal’s presence to create downstream value chains. “For 27 years, the company received incentives, but no factories were developed to transform aluminum into cables, utensils, or other industrial products. We export cheap raw material and import expensive finished products. It’s a model that drains resources rather than generates development.”
He added that, fiscally, Mozal’s contribution is minimal: it pays only a 1% release tax on quarterly gross sales, in addition to the state’s minority shareholding. “SMEs pay 32% in income tax, VAT, and various fees, while the country’s largest industry contributes almost nothing. This is a paradox,” he concluded.
Energy, Employment, and the Future of Industrial Policy
Energy disputes are at the heart of this crisis. Mozal purchases electricity through Eskom in South Africa rather than negotiating directly with Cahora Bassa Hydroelectric (HCB). For Egas Daniel, this dependence underscores “the urgency of renegotiating historic contracts and ensuring that energy is used as leverage for national industrialization.”
Gabriel Manguele, however, accuses Mozal of seeking to maintain subsidized tariffs at the expense of HCB’s sustainability: “We cannot sacrifice HCB, which provides regular dividends to the state, just to keep prices low for a company that contributes little to national development. That would compromise one of the few strategic assets Mozambique controls.”
The potential closure also presents a social dilemma: approximately 5,000 direct employees and more than 20,000 indirect workers could be affected, totaling over 25,000 people. Manguele notes that although this impact is severe, “it should not obscure the fact that Mozal never generated the number of jobs one would expect from an industry representing 3% of GDP.”
The debate between the two economists highlights a key point: Mozambique needs to rethink its megaproject attraction model, which has so far prioritized incentives and cheap energy in exchange for development promises that have not always materialized.
With the energy supply contract set to expire in 2026, the government will have to decide whether to renegotiate under more favorable conditions, ensuring greater national participation in profits and benefits, or allow Mozal’s exit, redirecting resources to other areas and finally investing in economic diversification.
Regardless of the outcome, the Mozal case makes it clear that reliance on a single megaproject can destabilize the entire economic structure. As Gabriel Manguele warned, “If nothing changes, the contract may extend to 2050, but it will continue to be a sterilizing project for development.”
Text: Nário Sixpene
