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geoffrey york

With its massive reserves of coal and gas, Mozambique has been one of the darlings of the African investment boom, luring billions of dollars from top global companies. But the investors may have forgotten one key factor: A simmering political feud that has now erupted into violence.

The escalating clashes between Mozambique's military and the ex-rebel opposition, Renamo, will be a crucial test of the country's fragile stability and emerging democratic system. And it holds broader lessons for investors. As they scramble for a share of Africa's minerals and energy bonanza, they need to look beyond the ruling parties if they want to understand the risks of instability.

The armed revolt by Mozambique's main opposition party is a reminder that rapid economic growth, by itself, cannot defuse the tensions caused by severe inequality, rampant corruption and single-party domination. If some sections of the population feel excluded from the boom, the risk of conflict is certain to rise.

Mozambique, an impoverished country in southern Africa on the Indian Ocean, has been climbing the ranks of the world's fastest-expanding economies, with growth projected at 7 per cent this year and likely to continue at similarly high rates for the foreseeable future.

Mozambique's offshore gas fields are expected to produce up to $400-billion in revenue over the next few decades, and its extensive coal deposits have also attracted billions of dollars in investment by multinational companies. Its capital, Maputo, has become a boom town, with soaring rents, upscale housing complexes, exclusive restaurants and shops filled with luxury goods.

All of this is a remarkable phenomenon in what remains one of the world's poorest countries, still recovering from the devastation of a 16-year civil war that killed a million people. But the new money isn't filtering down to most people. The unemployment rate is 60 per cent, the average citizen is earning less than a dollar a day, and some rural communities have been pushed aside to make room for coal-mining developments.

Mozambique might have survived this fragile situation if not for the loose cannon of Renamo, the former anti-communist rebel movement that was originally backed by the white minority regimes of Rhodesia and apartheid South Africa. After the long and bloody civil war, Renamo accepted a peace agreement in 1992 and became a political party.

Renamo today holds 51 seats in the 250-seat parliament, but its vote total has been steadily declining since the 1990s. The party is increasingly angry at its marginalization, accusing the government of committing election fraud and monopolizing political and economic power. It has vowed to boycott local and national elections this year and next year.

The veteran Renamo leader, ex-rebel commander Afonso Dhlakama, retreated to his remote jungle stronghold last year as the tensions grew. Skirmishes between his forces and government troops have been escalating since then, with at least 11 soldiers killed earlier this year.

Last week, when the army captured the jungle base where the Renamo leader had been staying, Renamo declared that it was pulling out of the 1992 peace agreement. Since then, dozens of soldiers and rebels have reportedly been killed in the fighting, and Mozambique's peace dividend has suddenly seemed in jeopardy.

While much of the revolt can be blamed on Renamo's political failures, it also raises questions over how the ruling party, Frelimo, is handling the economic boom, and whether it is unfairly hogging the new wealth.

"Renamo and its military men see the Frelimo leadership with big cars, expensive houses and businesses," wrote Joseph Hanlon, a British scholar who specializes in Mozambique, in a recent commentary. "And as the gap between rich and poor increases in a way that could not be imagined at the time of the peace accord in 1992, key Renamo figures want to be on the side of the wealthy."

Analysts are convinced that Renamo is too weak to threaten the government or ignite a return to war. But the clashes have already affected some sections of the economy. Coal exports, sent by rail to the coast, were temporarily suspended by fighting this year. Electrification programs have been delayed, and road traffic and tourism have been damaged. The rebels have threatened the key north-south transport routes in the country, although the government has vowed to protect the infrastructure.

Canadian energy companies, including a delegation scheduled to attend a major Africa oil and gas conference in Cape Town this month, will have to consider whether the renewed Mozambique fighting should be a factor in their business plans in East Africa.

Some of them faced a similar challenge in September when militants attacked the upscale Westgate shopping mall in Nairobi, the business hub of East Africa. Canadian companies have been active in oil exploration in the region, and their business offices are often located in Nairobi, which was widely seen as a stable city until the Westgate attack.

One prominent Canadian company in the Kenyan oil sector, Africa Oil Corp., has already been trying to explain to investors that it still considers Kenya to be safe, despite the Westgate attack. It's a message that the world is likely to hear from foreign investors in Mozambique too, but the risks remain.