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ECGD is providing Overseas Investment Insurance (OII) for a £40mn UK investment into Mozambique that will give a welcome boost to the country’s developing economy.

A syndicate of UK banks, led by Deutsche Bank and including BNP Paribas and Societe Generale, is putting forward the finance as part of a £155mn investment into Mozfund a special vehicle set up to fund South African exports to the Mozal II aluminium expansion project in Mozambique.

ECGD is providing OII cover to the UK banks against political risks in South Africa that could lead to non-payment of the loan.

International Trade Minister Baroness Symons says: “ECGD actively considers debt sustainability when deciding its cover policy for developing countries and seeks to promote investment as an alternative to credit. The Mozal project has, to date, been a success story for Mozambique and the UK has played an important role through significant investment backed by ECGD. OII has become a key ECGD product in recent years and I look forward to seeing it develop further as a valuable tool for UK investors.”

This new finance is for phase II of the development of the Mozal project, south of the capital Maputo. Output should double from the current 250,000 tonnes a year during the upgrade and the finished smelter is expected to boost Mozambique’s gross domestic product by 7%.

The main contractor in the project is BHP Billiton Plc (47% shareholder in Mozal) and its UK arm will benefit from revenue from the ongoing project the biggest foreign investment in Mozambique since its independence in 1975.

The project involves a number of major export credit agencies including Coface, the Development Bank of Southern Africa, the IFC and the Commonwealth Development Corporation (CDC). ECGD’s involvement puts it among this list of international supporters.

Piers Constable of Deutsche Bank says: “Political risk insurance is a necessary safeguard when looking at investments in certain markets and sectors. We look forward to continuing to make use of ECGD’s Overseas Investment Insurance to give our customers the access to the finance they require.”