| -> | | | | enterprises, and a variety of generous incentive |
| The regional context: | | | | schemes have laid the ground for profitable |
| Mozambique's development program has hardly been | | | | investment in a number of areas: cash crops, |
| affected by the slowdown in global growth and world | | | | manufacturing, financial services, export-processing |
| trade over the past two years because its growth | | | | (cashews, aluminium), etc. |
| has been driven by strong internal investment in new | | | | The traditional Mozambican role of providing its |
| export-oriented projects. Over the next few years, it | | | | eastern and southern hinterland with access to |
| has many opportunities to develop its metals | | | | seaports has given transport (rail, road, ports) and |
| industries for export and its ports and rail facilities to | | | | related services a central role in the economy, as |
| provide services for the regional market in southern | | | | illustrated by the Maputo, Beira and Nacala corridors. |
| Africa. In that respect, a resolution to the current | | | | Their further development now depends heavily on |
| problems in neighboring Zimbabwe would help | | | | private - and especially foreign - investment. The |
| Mozambique to develop those regional transportation | | | | country's location, its abundant endowment of |
| facilities that could support the Zimbabwe economy. | | | | renewable energy (e.g. the Cahora Bassa project), its |
| Like any African country, Mozambique's challenges go | | | | still unexploited mineral wealth and, last but not least, |
| deeper than absolute poverty, low income, falling | | | | its market-oriented policies have attracted a number |
| trade shares, low savings and slow growth! They also | | | | of large-scale manufacturing and mineral-exploration |
| include high inequality, uneven access to resources, | | | | projects to Mozambique in recent years. |
| social exclusion, and insecurity. | | | | The most prominent of these is the Mozambique |
| The environment for investment protection in | | | | Aluminium smelter project (MOZAL), which has made |
| Mozambique | | | | an initial investment of $1.3 billion. More such |
| The policy strategy currently pursued by Mozambique | | | | "mega-projects" are about to materialize and most of |
| is explicitly intended to improve conditions for foreign | | | | them are expected to offer substantial opportunities |
| direct investment (FDI). However, the environment | | | | to a variety of suppliers. An example is furnished by |
| for foreign investments protection in Mozambique is | | | | the activities based in the Beluluane industrial park (an |
| still inadequate to attract high quality and | | | | export-processing zone), located close to the MOZAL |
| efficiency-seeking investments and the incentive | | | | complex, south of Maputo. |
| framework continues to suffer from a number of | | | | Tourism, currently dominated by South African tour |
| deficiencies. | | | | operators, is another sector with very considerable |
| An investor in Mozambique is of course faced with | | | | potential. Even with the existing infrastructure |
| many of the bureaucratic and infrastructural hurdles | | | | constraints (which investment could help remove), |
| usually encountered in developing countries. One | | | | there are opportunities in such areas as game, |
| major bottleneck for many investors, especially the | | | | adventure and coastal resorts. |
| smaller ones, is the country's limited administrative | | | | Current constraints to the promotion and protection |
| capacity. Administrative handling of queries and | | | | of FDI |
| requests often reveals the deep roots socialism has | | | | Despite considerable efforts to modernize the |
| put down in public-sector culture. With external donor | | | | investment legal, regulatory and institutional |
| assistance, the Government has now undertaken | | | | framework, Mozambique still has some legal and |
| various red-tape analyses to identify unnecessary | | | | administrative barriers which hamper investment |
| administrative difficulties and the ways in which they | | | | development. Article 109 of the Constitution states |
| might be solved. | | | | that land ownership is completely vested in the state, |
| The increasing importance of FDI in Mozambique | | | | and that it cannot be sold or mortgaged. The land |
| Mozambique is a good example of a least developed | | | | legislation (Law no 19/97 of 1 October and Decree |
| country in which the basic constraints on | | | | no. 66/98 of 8 December 1998) both enhance the |
| development are being gradually removed by a | | | | land ownership entrenched in the constitution. |
| decisive and reform-minded Government which | | | | The legislation on labour and employment of |
| commands popular support. The sustainability of | | | | foreigners (Decree No. 57/2003 of 24 December |
| these efforts depends to a large extent on the | | | | 2003 on Employment of foreigners) is among issues |
| tangible results they produce in the main areas of the | | | | cited as a serious barrier to foreign investments. |
| economy. The Government is aware of this and in | | | | Other problems most commonly referred to are red |
| general committed to continuing on its current path. | | | | tape and corruption, lack of adequate competition |
| It is also aware that private-sector participation and, | | | | laws, the existing legal limitations impose on foreign |
| in particular, foreign direct investment with its unique | | | | ownership of company shares, stocks in the financial |
| combination of tangible and intangible assets, is | | | | markets and the labour requirements for nationals |
| indispensable to economic growth. In sum, | | | | which do not allow the dismissal of employees even |
| Mozambique is developing as a major investment | | | | in case of gross misconduct or theft. A new labour |
| location in Africa, as shown in the following paragraph. | | | | law was adopted by the Parliament, and published, its |
| The importance of FDI in the SADC region and | | | | provisions will become applicable in 2007. A tribunal in |
| Mozambique is confirmed by the following facts: | | | | charge of labour disputes settlement has been |
| - Global flows of foreign direct investment reached a | | | | established. |
| record US$ 1.3 trillion in 2004 | | | | Identified specific constraints to the promotion of FDI |
| - Mergers and acquisitions accounted for 85% of this | | | | in Mozambique include the following aspectso Small |
| amount | | | | size of the regional market, and this is compounded |
| - Developing countries in total received about US$ | | | | by relatively high transport costs of getting products |
| 240 billion | | | | to lucrative markets in the US and Western Europeo |
| - Africa received US$ 13 billion, of which about US$ 5 | | | | Incentive and competition measures,o Weak judicial |
| billion flowed into the 14 SADC countries | | | | institutionso Labour laws and lack of equitable dispute |
| - Of the US$ 5.5 billion, Mozambique received US$ 1.5 | | | | settlement compulsory measureso Red tape, crime |
| billion, SA - US$ 760 million, Angola - US$ 735 million | | | | and Corruptiono Infrastructure Weaknesseso |
| - South Africa is the largest source of FDI in the | | | | Corporate Governance Issueso Inadequate |
| SADC, accounting for up to 43% of Africa's US$1.3 | | | | market-friendly reforms (pace of privatization, reform |
| billion outflows, and accounting for up to 85% of | | | | of foreign ownership rules and rules governing the |
| total FDI in all other SADC countries in 2000. | | | | repatriation of profits)o Climate, natural disasters - |
| - Large South African companies, long denied the | | | | drought, floods, famine, etco HIV/Aids pandemic : |
| opportunity to invest substantially offshore due to | | | | one out of seven people is HIV positive (according to |
| exchange controls, have increasingly sought out | | | | Health Ministry and WHO sources) |
| opportunities for expansion in SADC, Africa and | | | | Urgent reforms are needed to facilitate fast tracking |
| beyond. | | | | of industrial development |
| Experience of investment protection in Mozambique | | | | - Legal and regulatory reform to remove all remaining |
| The legal and regulatory framework experience | | | | bottlenecks faced by foreign investors. |
| In 1999, a legislation providing for the establishment | | | | - Relaxation of investment restrictions. |
| and operation of industrial free zones (Export | | | | - Reform of the financial institutions, markets and |
| Processing Zones EPZs). New legislations were | | | | services with reference to international standards. |
| introduced to take into account the special status of | | | | Liberalization of exchanges and financial transactions, |
| agricultural, hotel, tourism, regional rapid Development | | | | with increased controls and supervisory technology. |
| Zones, mining and petroleum investments, including | | | | - Establishment of effective and well-capacitated |
| their fiscal benefits. Additional investment incentives | | | | institutions e.g. one-stop shops for investors |
| were adopted by law in 2003, allowing qualifying firms | | | | - Infrastructure upgrade and maintenance - public |
| in particular sectors, including garments, chemicals, | | | | investment will 'crowd-in' private investment. |
| engineering, food and printing, to import duty free. | | | | - Rural development - incentives to businesses to |
| Mozambique has established itself in recent years as | | | | locate in rural 'growth' areas - spreading development, |
| one of the leading FDI recipient countries in Eastern | | | | and curbing the rural urban migration patterns. |
| and Southern Africa. In 1997, FDI amounted to US $ | | | | - Guided investment' - state targeted interventions in |
| 64 millions, and FDI inflows were catapulted to US $ | | | | specific industries, offering generous loans, tax and |
| 213 millions in 1998, and to US $382 million in 1999, | | | | operating concessions, and tariff protection in the |
| with the two mega projects of Mozal Aluminum | | | | early stages. |
| smelter and the Maputo - Witbank toll-road. After a | | | | - Massive investment by the state in research and |
| decline in 2000, FDI rebounded again in 2001 to $255 | | | | development (R&D). |
| million and to $ 380 in 2002. In 2004, it is reported an | | | | - Investment strategy to develop rural industries. |
| increase up to US $ 1,8 billions dollars. | | | | Additional measures to promote the flow of foreign |
| In 2004, Foreign Investments in Mozambique were | | | | direct investment should include: through government |
| estimated at US $ 1,800 millions and positioned the | | | | public works programs, increasing profit incentives for |
| country as the first recipient in the Southern African | | | | rural factories establishing rural-urban-global supply |
| region. Half of the investments came from South | | | | chains, reverse engineering tactics, investment in |
| Africa alone. Foreign direct investment (FDI) in | | | | Research &Development, relaxation of foreign |
| Mozambique - on approval basis - reached a | | | | ownership and repatriation laws. |
| cumulative total of $ 1.6 billion between 1985 and | | | | Concluding remarks |
| 2000. The main sources of FDI were the Republic of | | | | Mozambique has, over the last decade, demonstrated |
| South Africa with 28 per cent of the total volume. | | | | considerable efforts to create adequate legal and |
| The United Kingdom with 22 per cent and Portugal | | | | regulatory frameworks for the protection of foreign |
| with 19 per cent. Other leading investor countries are | | | | direct investments. However there remain serious |
| Japan, Mauritius and the United States. It is worth | | | | impediments which still affect negatively the flow of |
| noting that investors from non traditional source | | | | foreign investments. Inconsistent policies and |
| economies like Japan, France, Hong Kong (China), | | | | inadequate host country operational measures |
| United States, Malaysia and Mauritius have | | | | (HCOMs) are some of the challenges which call for |
| participated in key areas like banking, textiles, steel | | | | more reforms. |
| and sugar over the past five years. | | | | There is need for increased awareness within the |
| South African investments in Mozambique are fairly | | | | Government of Mozambique and public institutions on |
| diversified with the greater influx being directed to | | | | key issues related to the promotion and protection |
| partnerships in major projects, but there are also | | | | of foreign investments. The point is: foreign investors |
| investments in small and medium-scale projects, | | | | want to gain market access, have their investments |
| especially in industry and tourism. The United Kingdom | | | | protected and be free to operate in a manner of |
| has now moved to the second position as a source | | | | their choosing. Host countries want to develop |
| of FDI on account of Billion's participation in MOZAL | | | | services and infrastructure, meet local needs, |
| Project (an Aluminum melting mega project). | | | | produce exportable goods and improve locally |
| All these considerable investments were made | | | | available technology. The interest of foreign investors |
| despite major impediments, which still limit access to | | | | and host governments can be harmonized if the |
| business development in Mozambique. This suggests | | | | investment meets both sets of agendas. This can be |
| that FDI could even be more dynamic if some key | | | | done if investors decide on the viability of specific |
| issues with the investment climate were resolves. | | | | projects and the host governments decide on the |
| These include land ownership issues, the competitive | | | | priority sectors and conditions of FDI consistent with |
| policies and laws for foreigners. According to a recent | | | | their economic and development objectives. |
| USAID report that despite significant improvements. | | | | As in the case of Mauritius, this should be a credible |
| Investment opportunities are still widely untapped | | | | development program backed by credible policy |
| With a mostly poor population of 19 million, the | | | | framework conducive to long-term economic and |
| Mozambican market is small in itself. However, its | | | | social stability. With such policies, the country is more |
| integration into the Southern African Development | | | | likely to have the capacity over time to service the |
| Community (SADC) offers investors easier access to | | | | repatriation of profits, provide a skilled and healthy |
| the main market in southern Africa: South Africa and | | | | labour force, and develop suitable infrastructure. |
| the other 12 member countries. | | | | Financial institutions, markets and services should be |
| Agriculture (cashews, cotton, tobacco, sugar and | | | | reformed with reference to international standards. |
| other cash crops) and fishing and aqua-culture | | | | Finally, this program should cover the need for |
| (prawns and shrimp) are the backbone of the | | | | convergent bilateral and multilateral investment and |
| Mozambican economy. Investment opportunities are | | | | trading arrangements with countries members of |
| also available in the related agro-processing industries, | | | | SADC to avoid trade and investment deflection and |
| especially in the southern region. The liberal economic | | | | diversion. This should also go along way towards |
| reforms pursued by the Government, the almost | | | | removing administrative and fiscal barriers to the |
| complete privatization of formerly state-owned | | | | promotion of investments. |