MOZAMBIQUE Investment Guide
Openness to Foreign Investment
The law generally does not make distinctions based on
investor origin. In the past, political risk, corruption, bureaucratic red
tape, dilapidated infrastructure, and the relatively small size of the market
served as strong deterrents to foreign investment. Since peace in 1992 and the
first elections in 1994, the political situation has improved markedly, and the
role of Government in the economy has steadily decreased. With much help from
donor countries, the massive task of rehabilitating the country's
infrastructure has begun to show results. In addition, Mozambique has forged new bilateral
relationships with South
Africa, Portugal, Zimbabwe, Mauritius and others in the region, as well
as the United States, France, Italy, and China. These relationships expand market opportunities for Mozambique and encourage investment.
Currency Conversion and Transfer Policies
Access to foreign exchange has been greatly liberalized.
Foreign exchange retention accounts are permitted for 100 percent of foreign
exchange earnings, without formal justification. These may be used to purchase
required imports. Investment registration and repatriation application
procedures must be followed to repay foreign loans, and for the repatriation of
invested capital, profits, and dividends, in amounts greater than $5000.
Application procedures include the presentation of audited accounts.
Expropriation and Compensation
According to Mozambican law, “when deemed absolutely necessary for weighty reasons of national interest or public health and order, the nationalization or expropriation of goods and rights comprised ... shall be entitled to just and equitable compensation.” There has been no significant case of nationalization since the new Constitution in 1990. The government has reacquired a handful of companies that had been privatized, because the conditions of the sales contract had not been fulfilled. These companies are to be re-sold.
Dispute Settlement
The judicial system in Mozambique is not effective in resolving commercial disputes. Most disputes among Mozambican parties are settled privately or go unresolved. The business community is still small enough so that a damaged reputation from a commercial dispute or accusation of illegal activity can seriously damage a business. For foreign investors, Mozambique offers recourse to arbitration. In February 1999, the Assembly legally recognized alternative dispute resolution. For disputes between international and domestic companies, the law closely follows the UNCITRAL, the United Nations Commission of International Trade Law model. For domestic arbitration, the law is formulated to cover potentially a wide range of disputes, including non-commercial ones. In addition, Mozambique acceded in mid-1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. CTA, the confederation of Mozambican business associations, is creating a center for Alternative Dispute Resolution in 2000.
Performance Requirements and Incentives
Specific performance requirements are built into mining
concessions and management contracts, and sometimes into the sale contracts for
privatized entities. Investments involving partnerships with the government
usually incorporate milestones that must be met for the investor to continue
with the project.
To encourage direct foreign investment, a variety of tax incentives is
available. They vary according to the region of the country and the nature of
the investment concerned, but often include a 50 to 80 percent reduction in the
industrial contribution and supplemental taxes.
Customs exemptions are possible for the importation of capital equipment and raw materials. To qualify, a minimum investment of $50,000 and pre-approval from the Investment Promotion Center are required. Legislation also supports the creation of export processing zones.
Private Ownership Rights
Private ownership is protected under the law. Outright
ownership of land, however, is not allowed. The government grants land-use
concessions for periods of up to 50 years with options to renew. Essentially,
land use concessions serve as proxies for land titles, but make it extremely
difficult to use land as collateral.
Protection of Property Rights
Protection of Property Rights—the law guarantees the
security and legal protection of property rights, including those termed
“industrial property rights.”
Transparency of Regulatory System
New regulations governing the Investment Promotion Center (CPI) have made the investment approval process automatic within 10 days, if no objections are voiced by the relevant ministries: the provincial governor, for investments under $100,000; or the minister of planning and finance, for investments between $100,000 and $100 million. The Council of Ministers must review investments over $100 million, and those involving large tracts of land (5,000 ha for agriculture, 10,000 ha for livestock or forestry). The Council has 17 working days to voice an objection before approval becomes automatic.
Political Violence
The prospect of political violence has steadily declined
since the end of the war. Labor unions are becoming more vocal, and it is not
unusual for groups to occupy management offices for a day. However, protests
are rarely associated with violence. As in many capital cities, crime is
problematic in Maputo, but has not reached the epidemic
proportions of neighboring South Africa.
Groups of bandits specialize in home assaults, carjacking, and highway robbery,
but claim no political affiliation.
Corruption and Crime
There is little doubt that corruption increased
significantly during the years immediately preceding and following the peace
accords. Government salaries were low, and confusing regulations from both the
colonial and Marxist eras provided fertile ground for unethical behavior.
Customs was a particular problem, as were the ports and the various land
concession authorities. However, Mozambique does not have a long history of corruption. Many Mozambicans have been
vocal on the subject, including the press. Until recently, the battle against
corruption was waged through privatization of banks, parastatals, and customs
operations. Currently, the battle is waged by efforts to strengthen the
judicial system, streamline and simplify regulations, improve enforcement
mechanisms, reduce government bureaucracy, and improve the salary and training
of government workers.
Labor
The estimated work force numbers eight million, of which 17 percent earn
regular wages. The minimum wage of about $40 per month has been a source of
discontent. Most working Mozambicans derive income from more than one activity,
and grow corn and vegetables on a small plot of land for personal consumption.
Three-fourths of the working population is made up of family farmers.
Nationwide literacy levels are estimated at 40 percent; in general, educational
standards are considered low. Common working wages in Maputo are higher than in the rest of the
country, averaging in the neighborhood of $50 a month. Literacy is also believed
to be higher, around 80 percent.
Labor unions, created during the socialist years, are still weak although they are asserting greater independence from the ruling Frelimo Party. Total membership among Mozambique's thirteen unions is less than 200,000. A great concern for unions is the minimum wage. Restructuring of state-owned enterprises, and consequent reductions in union employees or closing of facilities is another important issue for them.
International Investment Agreements
The country's most significant bilateral commercial
relationship is with South
Africa. Since 1995, Mozambique has engaged in regular discussions
with South Africa to harmonize regulations and
facilitate cross border trade and investment. Mozambique has signed bilateral investment agreements with the U.S., South Africa, Portugal, Zimbabwe, Mauritius, France, Italy, and China. It is currently negotiating with the U.K.
Foreign Trade Zones
The government is anxious to see industrial free zones (export processing zones) take hold in Mozambique, and legislation supports this. There is growing foreign investor interest, especially for free zones in Maputo and Beira. MOZAL, the aluminum smelter under construction in Maputo, is the first such enterprise to avail itself of this legislation. New regulations issued in September 1999 established an Industrial Free Zone Council. The Council can designate industrial free zone enterprises, these are legally entitled to operate in the zones. Approvals are made considering the micro and macro economic effects of the project; at least 85 percent of the annual production must be exported. The exploration and extraction of natural resources, including processing of cashew nuts, fish, and prawns, is excluded from free zone designation. Free zone concessions are granted for a renewable period of 50 years.
Foreign Investment Statistics
South Africa, Portugal, Great Britain, Hong Kong, and the Netherlands are the top five investors. South Africa (63%) and Portugal (14%) account for over three-fourths of all foreign investment. The U.S. is behind the Netherlands and Hong Kong, with a two percent share. These figures have been heavily affected by MOZAL. Similarly, Enron's Maputo Iron and Steel Project promises to radically alter the U.S. standing once construction begins.
Taxation
The corporate income, capital gains and branch tax rates in Mozambique are each 35 percent for
agricultural companies, 40 percent for industrial companies, and 45 percent for
all others. Some investments are eligible for a 50 percent rate reduction for
up to ten years. Investments in Niassa, Cabo Delgado, and Tete provinces are
eligible for 80 percent reduction. Infrastructure and equipment investments are
eligible for complete exemption for five years. Customs exemptions are possible
for the importation of capital equipment and raw materials. To qualify, a
minimum investment of USD 50,000 and up-front approval from the Investment Promotion Center are required. Legislation also
supports the creation of export processing zones.
A withholding tax of 18 percent applies to dividends, and withholding tax of 5
percent applies to interest.
For more information on investing in Mozambique, see URL: http://www.mozambique.mz/eindex.htm