Country Commercial Guide 2006

Chapter 1: Doing Business in Mozambique

Chapter 1: Doing Business In Mozambique
• Market Overview
• Market Challenges
• Market Opportunities
• Market Entry Strategy

Market Overview    
    
Mozambique’s economy, recovering from a devastating civil war and benefiting from macroeconomic reforms and large foreign investment projects, grew an average of eight percent per year during 1994-2005 – the best growth record for any country in sub-Saharan Africa over this period.  Foreign direct investment, exports and revenue collection all increased markedly during this time.  The period of mass privatization has ended, although some of the dozen remaining parastatals may still be sold off.  The HIPC (Heavily Indebted Poor Countries) and Enhanced HIPC debt relief programs have given the government more breathing room to focus efforts to alleviate poverty, a key policy goal.  These efforts received more support in late December 2005, when IMF forgave 100% of Mozambique’s debt incurred prior to January 1, 2005 under the new Multilateral Debt Relief Initiative (MDRI).  Real GDP growth for 2004 was nearly eight percent and it is currently estimated that real GDP growth for 2005 was around seven percent.  Furthermore, the Mozambican government (GRM) expects an average real GDP growth rate of seven to ten percent over the next five years.

Maintaining this high level of growth hinges upon the success of several major foreign investment projects, continued economic reform and expansion of the agriculture/agribusiness, transportation, energy and tourism sectors.  The economic growth comes from a low base; the current estimated per capita GDP for 2005 is $345.  The inflation rate for 2005 was 14%.

Market Challenges
        
Despite Mozambique’s investment potential, the Mozambican business climate remains a challenging one.  Generally good macroeconomic policies and a high-level commitment to attracting large-scale investments masks a bureaucracy that remains at times unresponsive to the needs of corporations, especially small-to-medium-sized enterprises.  Permits are slow and difficult to obtain; corruption is problematic; the legal system is antiquated and cumbersome.  Procedures to clear customs remain onerous.

Although under revision, the labor law is a serious impediment to businesses.  The government has limited qualified staff, and this small pool of workers is under increased threat from the spread of HIV/AIDS.  Mozambique functioned as a socialist economy in its first decade after independence in 1975, and the Constitution does not allow private ownership of land.  Land can only be leased, although for renewable 50-year periods.  Road infrastructure is generally poor, except for large stretches of the main south-north highway, the Beira corridor and the toll highway connecting Maputo with Johannesburg, South Africa.  Cell phone coverage is quite good in most inhabited areas of the country, however.

Market Opportunities      

American investment and export opportunities exist in construction, energy (natural gas, hydropower and bio-diesel), mining (tantalum, graphite and coal), fishing (prawns, lobster, pelagic fishes), aquaculture, tourism, agriculture/horticulture (cashews, sesame, tea, essential oils, vegetables, flowers, paprika, tobacco and fruits), telecommunications and transportation.  Additional export possibilities lie in infrastructure projects in agriculture, transportation, education and health, which are financed by the World Bank, the African Development Bank, USAID and other donors, and NGOs.

Mozambique is eligible for trade benefits under the African Growth and Opportunity Act (AGOA), the European Union Cotonou Agreement, the Southern African Development Community (SADC) Trade Protocol and the U.S.-Mozambique Bilateral Investment Treaty, all of which increase the country’s attractiveness for investments.  Mozambique has submitted a compact proposal to the Millennium Challenge Corporation (MCC) and is currently working with the MCC towards the signing of a compact.  The compact proposal, focused on the northern part of the country, contains several potential projects, including improving the business environment, water, sanitation and transportation infrastructure, investment in the agricultural sector and developing tourism. 

Market Entry Strategy      

Most companies find it advantageous to establish a local office in Mozambique to assist in dealing with local officials and clients.  At a minimum, this involves registration with three ministries:  the Ministry of Industry and Commerce, the Ministry of Planning and Development and the Ministry of Finance.  Red tape, through reduced, remains a problem, and petty corruption can obstruct the securing of local licenses and permits.  Most U.S. firms hire a consulting firm to assist with the registration process, and small-to-medium-sized businesses experience significant delays.  The “Doing Business in 2006” World Bank Report identifies Mozambique as one of the most difficult countries in the world to start a business.  Entrepreneurs can expect to go through at least 14 steps to a launch a business, in a lengthy procedure that according to the World Bank lasts, on average, 139 days.  Prospective investors use the government’s Investment Promotion Center (CPI) for assistance in obtaining licenses and permits.