Cablegate: Mozambique's 2008 Investment Climate Statement


DE RUEHTO #0060/01 0180638
R 180638Z JAN 08




E.O. 12958: N/A

1. The following is Mozambique's 2008 Investment Climate

Openness to Foreign Investment

2. Mozambique encourages foreign direct investment. CPI,
the government's Investment Promotion Center, seeks to bring
investors to Mozambique and should be a potential investor's
primary contact with the government. CPI is particularly
interested in increasing investment in the central and
northern regions of the country in order to address large
regional development imbalances.

Contact information for the Investment Promotion Center (CPI)
is as follows:

Investment Promotion Center (CPI)
Rua da Imprensa, 332 (ground Floor)
Caixa Postal 4635, Maputo
Tel: (258) (21) 313310/75 or (21) 313295/99
Fax: (258) (21) 313325

3. Mozambique's Law on Investment, No. 3/93, dated June 24,
1993, and its related regulations govern foreign investment.
Additional amendments were passed over the next two years:
Decree No. 14/93 on July 21, 1993 and decree No. 36/95 on
August 8, 1995. The law and amendments generally do not make
distinctions based upon investor origin, nor do they limit
foreign ownership or control of companies. The lengthy
registration procedures can be problematic for any investor
) national or foreign -- but those unfamiliar with
Mozambique and the Portuguese language face greater
challenges. Working with a local consulting firm or partner
familiar with the requirements will facilitate the
registration process. CPI assists both local and foreign
investors in obtaining licenses and permits. However, in
general, large investors receive much more support from the
government in the business registration process than small
and medium-sized investors.

4. The World Bank's "Doing Business in 2008" report
indicates that entrepreneurs can expect to go through at
least 10 identifiable steps to launch a business that
according to the World Bank lasts, on average, 29 days.
Overall, the ease of doing business in Mozambique is ranked
at 134 out of 178 countries. The government and private
sector continue to work with donors to improve the business

5. To date Mozambique's privatization program has been
relatively transparent, with open and competitive tendering
procedures in which both foreign and domestic investors have
participated. Most remaining parastatals are in public
utilities, making their privatization more politically
sensitive. While the government has indicated an intention
to take on partners in most of these utility industries,
progress on privatization has been slow.

6. Government authorities must approve all foreign and
domestic investment. Currently CPI handles the approval
process for both foreign and domestic investors. The final
approval is granted by the following government entities: 1)
The Provincial Governor for domestic investment up to USD
100,000; 2) The Minister of Planning and Development for
domestic investment exceeding USD 100,000 and foreign
investment up to USD 100 million; and 3) The Council of
Ministers for any investment project exceeding USD 100
million and those involving large tracts of land (5,000
hectares for agricultural investment and 10,000 hectares for
livestock and forestry projects.

Conversion and Transfer Policies

7. Foreign exchange retention accounts are permitted for 100
percent of foreign exchange earnings without formal
justification. These may be used to purchase imports.
Investment registration and repatriation procedures must be
followed to repay foreign loans and for the repatriation of
invested capital, profits and dividends. Delays are uncommon
beyond those typical for administrative processing in a
developing country.

Expropriation and Compensation

8. Private property was nationalized throughout Mozambique
in 1975 following independence from Portuguese colonial rule.
After Mozambique's turn away from socialism in the 1980s,
citizens had a period of time to reclaim residential
property. The government retained commercial property, but
later sold it off as part of its privatization efforts. All
but a handful of religious properties that were nationalized
have been returned; negotiations are ongoing for the
remaining few. It is worth noting, however, that there is no
private ownership of land in Mozambique; all land is owned by
the state.

9. While there have been no significant cases of
nationalization since the adoption of the 1990 Constitution,
Mozambican law holds that "(w)hen deemed absolutely necessary
for weighty reasons of national interest or public health and
order, the nationalization or expropriation of goods and
rights(shall (result in the owner being) entitled to just
and equitable compensation."

Dispute Settlement

10. In December 2005 the National Assembly approved major
revisions to the commercial code - the result of a
collaborative effort starting in 1998 between the Mozambican
government, the private sector and donors. The previous
commercial code was from the colonial period, with clauses
dating back to the 19th century, and did not provide an
effective basis for modern commerce or resolution of
commercial disputes. The revised code is generally viewed as
a very positive development. The new Commercial Code went
into effect July 1, 2006.

11. To date the judicial system has been largely ineffective
in resolving commercial disputes. Instead most disputes
among Mozambican parties are either settled privately or not
at all.

12. In February 1999, the National Assembly legally
recognized Alternative Dispute Resolution, which provides for
foreign investors to have access to arbitration. The Center
for Commercial Arbitration, Conciliation and Mediation
(CACM), which is supported by USAID, offers commercial
arbitration. CACM has two locations - one in Maputo and a
second in the northern city of Nampula. CACM does not,
however, deal directly with labor issues. For disputes
between international and domestic companies, the law closely
follows UNCITRAL, the United Nations Commission of
International Trade Law. For domestic arbitration, the law
is formulated to cover a wide range of potential disputes,
including non-commercial issues. Mozambique acceded in
mid-1998 to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards. For disputes between
American and Mozambican companies where a violation of the
nations' Bilateral Investment Treaty (BIT) is alleged,
recourse via international ADR under the BIT may also be
available. Investors who feel they have a dispute covered
under the BIT should contact the US Embassy Economic Section.

Performance Requirements and Incentives

13. Mozambique is generally in compliance with WTO
Trade-Related Investment Measures (TRIM) obligations. A
variety of tax incentives exist to encourage direct foreign
investment, which vary according to the region of the country
and the nature of the investment but often include a 50 to 80
percent reduction in taxes. After the end of the period of
tax reductions, additional benefits, which vary according to
the location of the investment, are available. For example,
special tax benefits are granted to investors for the
rehabilitation or expansion of operations. For a five-year
period, an immediate 100% write-off is allowed for
investments in new equipment and in the construction of civil
installations and agricultural infrastructure. Customs
exemptions are possible for the importation of capital
equipment and raw materials. To qualify, a minimum
investment of USD 50,000 and pre-approval from CPI are
required. The government grants special fiscal, labor and
immigration arrangements to companies operating in designated
Rapid Development Zones. Rapid Development Zones include the
whole of Niassa Province, Nacala District, Ilha de
Mocambique, Ibo Island and the Zambezi river valley.
Investments in these zones are exempt from import duties on
certain goods, from real property transfer tax and are
granted an investment tax credit equal to 20% of the total
investment (with a right to carry forward for five years).
There are also incentives for companies in industrial free
14. Specific performance requirements are built into mining
concessions and management contracts, and sometimes into the
sale contracts of privatized entities. Investments involving
partnerships with the government usually include milestones
that must be met for the investor's project to continue.

15. Note: The process of obtaining a visa and related work
permits in Mozambique is lengthy and overly bureaucratic.
The Ministry of Labor must approve the employment of
foreigners. The Ministry of Interior's immigration
department issues a DIRE (a work permit/identification card)
once the Ministry approves the application. Assistance
through a local lawyer, consulting firm or an individual
familiar with the process will facilitate obtaining necessary
work permits.

Right to Private Ownership and Establishment

16. The legal system recognizes and protects property rights
to building and movable property. Private ownership of land,
however, is not allowed in Mozambique. Instead the
government grants land-use concessions for periods of up to
50 years, with options to renew. The government at times has
granted overlapping land concessions. Essentially, land-use
concessions serve as proxies for land titles; however, they
are not allowed to be used as collateral. Land surveys are
being carried out throughout the country to enable
individuals to register their land concessions. This process
is moving slowly and will not provide any real legal
protection to investors for some time to come. The
Mozambican banking community uses property other than land,
such as cars and private houses, as collateral.

Protection of Property Rights

17. The inefficient nature of the Mozambican judicial system
makes protection of property rights extremely problematic.
Pirated copies of audio, videotapes, DVDs and other goods are
sold in Mozambique.

18. The National Assembly passed a copyright and related
rights bill in 2000. This bill, combined with the 1999
Industrial Property Act, brought Mozambique into compliance
with the WTO agreement on the Trade Related Aspects of
Intellectual Property Rights (TRIPS). The law guarantees the
security and legal protection of industrial property rights,
copyrights and other related rights.

19. Over the last three years private sector organizations
have been working together with various government entities
on an IPR task force team in an effort to combat intellectual
property right infringement and related public safety issues.
The task force has successfully acted on IPR infringement
issues, highlighting a successful private/public partnership.

Transparency and Regulatory System

20. Investors face a myriad of requirements for permits,
approvals and clearances, all of which take a significant
amount of time and effort to obtain. The difficulty of
navigating the system creates space for corruption, and
bribes are often requested to facilitate transactions.

21. Regulations in the areas of labor, health and safety and
the environment are routinely not enforced, or are enforced
randomly to generate revenue from fines. In addition, civil
servants have at times threatened to enforce antiquated
regulations that remain on the books to obtain favors or

22. The government is aware of the problems and has launched
a donor-funded effort to streamline procedures. The new
Commercial Code that went into effect July 1, 2006, is seen
as a step forward in combating many of these issues.

--------------------------------------------- -----
Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----

23. Mozambique has a small capital market of eleven
commercial banks, of which four dominate the market. The
banks compete for important clients and deposits. Access to
credit for the private sector remains difficult and expensive
) interest rates for loans generally fall between 17 and 22
percent per year. Access to capital in the rural areas is
constrained by the fact that land leases cannot serve as
collateral. Various entities, such as the Aga Khan
Foundation and Novo Banco, offer micro-credit financing
programs to partially fill this need.

24. The Mozambican Stock Exchange, founded in October 1999,
was started with less than USD 5 million in capitalization.
Although a fundamental instrument for the raising of finance
by companies, to date the exchange has only one listing
(Cervejas de Mocambique). In the initial stages, the main
objective of the stock exchange will be to place on the
market shares of the larger companies that were recently
state-owned. The capital base requirement for listing is USD
1.5 million.

Political Violence

25. There were few incidents of localized violence in the
run-up to the 2004 general elections. In May 2004 many
opposition parties and the ruling FRELIMO party subscribed to
an electoral code of conduct, which was generally upheld
during the campaign and the elections. However supporters of
the opposition party RENAMO complained of intimidation and
arbitrary arrests during the December 2004 voting.

26. Labor unions are becoming less vocal, and lack the
financial and institutional capacity to be very effective.
Protests rarely turn violent. However, on July 16, the head
of the Mafambisse security force in Sofala province shot and
killed striking worker Domingos Chanjane and injured two
others. While workers participating in the strike insisted
the perpetrator was also a member of the police, a police
spokesman denied the claim. There were no further updates at
year's end. As in many capital cities, crime is problematic
in Maputo, where carjackings, muggings and home break-ins are
commonplace. The country experienced a sharp increase in
crime during 2007, particularly in and around Maputo City. An
overanxious police force responded with a strong show of
force and often resorted to violence as a first resort. While
such acts have been on the rise over the past few years, they
have not reached the same proportions as in neighboring South


27. Corruption is a serious problem in Mozambique.
Bribe-seeking activity by officials is common. Senior
officials often have conflicts of interest between their
public roles and their private business interests. Bribery
is considered a criminal offense in Mozambique, and political
declarations have been repeatedly issued denouncing corrupt
practices and promising actions against the guilty. Despite
this, such actions have been extremely slow in coming.
Investigations rarely result in convictions, unless the
accused has relatively minor influence, and no corruption
cases involving high-profile individuals have been brought to
trial during the Guebuza administration.

28. Over the past several years the United States has been
one of the lead donor countries in providing assistance to
the government to fight corruption. With US resources, the
government set up an Anti-Corruption Unit in the Office of
the Attorney General (renamed in 2005 the Central Office for
the Combat of Corruption). This body is charged with
investigating and prosecuting corruption-related crimes.
According to the GCCC, from January to August prosecutors
brought charges in 13 cases of corruption. In August the
Supreme Court refused to consider some 15 corruption cases
brought forward by the GCCC after several judges claimed the
GCCC lacked legal authority to prosecute.

29. In 2005 the government passed Decree 22/2005, which
created provincial-level offices to combat corruption.
Offices were opened in Beira and Nampula, and are in
operation. In 2006 documents authorizing the creation of two
additional offices in Inhambane and Zambezia provinces,
respectively, were submitted; offices will be opened once the
Council of Ministers publishes its approval decree.

30. The National Assembly passed an anti-corruption bill in
2004 that updated previous antiquated legislation. Civil
society (particularly the media and a few dedicated NGOs) has
remained vocal on corruption-related issues, with some
support from the US government. One NGO, the Center for
Public Integrity, continues to be active in pressuring the
government to act against corrupt practices.

31. Mozambique is a signatory to the Untied Nations
Convention Against Corruption.

Bilateral Investment Agreements

32. In December 1998 Mozambique negotiated a Bilateral
Investment Treat (BIT) with the US. The U.S. Senate ratified
the treaty in November 2000, followed by the Mozambican
Council of Ministers in December 2004. The US-Mozambique BIT
came into effect on March 3, 2005. In June 2005 the US and
Mozambique signed a Trade and Investment Framework Agreement
(TIFA) that established a Trade and Investment Council to
discuss bilateral and multilateral trade and investment
issues. The Council held its first meeting in October of
2006. OPIC signed an agreement with Mozambique in 1999,
later ratified in 2000.

33. Mozambique has also signed bilateral investment
agreements with the following nations Algeria, Belgium,
China, Cuba, Denmark, Egypt, Finland, France, Germany,
Indonesia, Italy, Mauritius, The Netherlands, Portugal, South
Africa, Sweden, Switzerland, The United Kingdom, and

34. South Africa is Mozambique's biggest trading partner and
the largest cumulative source of foreign direct investment
(FDI). Since 1995 Mozambique has engaged in regular
discussions with South Africa to harmonize trade regulations
and facilitate cross-border trade and investment. Other
countries with significant investment in Mozambique include
the United Kingdom, India, China and Portugal. The United
States is a relatively minor trading partner, but was the
largest source of FDI in 2007.

OPIC and Other Investment Insurance Programs

35. The Overseas Private Investment Corporation (OPIC) has
provided financing to two ongoing projects in Mozambique )
private investment in and management of transportation
services along the Nacala corridor (port and railway) and
tourism development on the coast.

36. Mozambique is a member of the Multilateral Investment
Guarantee Agency (MIGA), part of the World Bank Group.


37. The estimated work force is approximately nine million,
out of a total population of 20 million. However, only
approximately 16.4% are in salaried positions. In 2007 the
government increased the country's minimum wage by 13% in the
industry and services sectors and by 11.5% in the agriculture
sector, making the new minimum wage for industry and services
approximately USD 58 a month and the minimum wage for
agricultural workers approximately USD 40 a month. These
increases were slightly above reported inflation. This
minimum wage applies only to those working in the formal
sector; those working in the informal sector may earn
significantly less. Many people work several jobs to earn a
sufficient income and often grow corn and vegetables on a
small plot of land for personal consumption. Approximately
80% of the labor force works in agriculture, 6% in industry
and 13% in services. Current estimates place nationwide
adult literacy levels at under 50%, with most of the literate
Mozambicans living in urban centers.

38. Although the contracting of Mozambican workers is
unrestricted, contracting of foreign workers by national or
foreign entities, including administrators and
representatives of foreign companies, is subject to the
authorization of the Ministry of Labor. Foreign workers must
possess professional qualifications and may only be
contracted where there are no Mozambicans with such
qualifications or their number is insufficient. All
investments must specify in the investment project proposal
the number and category of Mozambican and foreign workers to
be employed.

39. The establishment of wages and other forms of
compensation to be paid to the employee are not subject to
control. However, the labor legislation provides for a
minimum wage of USD 50 per month for employees in the
commercial, industrial and other sectors.

40. Labor unions created during the socialist years of the
1970s and 1980s remain weak and are disengaging themselves
from the ruling party, FRELIMO. Total membership among
Mozambique's fourteen unions is close to 200,000 persons.
Labor unions are exerting pressure on the government to
maintain extremely pro-worker provisions in labor
legislation, although they are showing flexibility on major
issues. The minimum wage, decided every year, remains a
major concern for the unions. Potential investors should be
aware that severance payments and other benefits can be
costly. Despite the introduction of a new labor law in 2007,
the labor market remains rigid and an impediment to business.

41. Mozambique is a signatory to the International Core
Labor Standards.

Foreign-Trade Zones/Free Trade Zones

42. The government issued Decree No. 61/99 on September 21,
1999, establishing industrial free zones (export processing
zones). The decree set up an Industrial Free Zone Council,
which approves companies as industrial free zone enterprises,
thereby providing them customs and tax exemptions and
benefits. There are three essential requirements for
Industrial Free Zone status: job creation for Mozambican
nationals, the exportation of at least 85% of annual
production, and a minimum investment of USD 50,000. The
decision to grant Industrial Free Zone status lies with the
Mozambican Council of Ministers and is conditional on the
proposal creating 500 permanent positions for Mozambican
employees, of which each company operating with the
Industrial Free Zone must employ at least 20 of these

43. Industrial Free Zone developers enjoy an exemption from
customs duties, VAT and tax on the importation of
construction materials, machinery, equipment, accessories,
accompanying spare parts and other goods destined for the
establishment and operation of the Industrial Free Zone. The
processing of cashew nuts, fish and prawns are not acceptable
industrial free zone activities. Free zone concessions are
granted for a renewable period of 50 years. Mozambique's
large export-oriented investment projects of recent years,
such as MOZAL and SASOL, operate as industrial free zones.
There is no requirement for free zone companies to be located
at specific sites.

44. In addition, Special Economic Zones can be established
on a case-by-case basis with the objective of developing
specific geographical areas that benefit from exemption from
custom duties and taxes, a free "off-shore" type foreign
exchange regime and special labor and immigration regimes. A
special tax and custom regime has been created for the
Zambezi Valley until 2025.

Foreign Direct Investment Statistics

45. Historical Data: The government established the
Investment Promotion Center (CPI) in 1985. From January 1,
1990 through December 31, 2007 CPI approved a total of 2,436
projects (both foreign and national), involving over USD 5.5
billion in foreign direct investment in 2007 alone. Some of
these approved projects turned out to be smaller than planned
or not implemented at all, however. Approved projects do not
represent the actual FDI for any given year for this reason.

46. In 2007 the top ten sources of foreign direct investment
were the United States, Switzerland, Mauritius, South Africa,
the United Kingdom, China, Portugal, Tanzania, Spain, and

47. The following chart displays foreign direct investment
approved by the CPI in Mozambique over the last 17 years.
Most of the investment has been in the south, in and around
the capital city, Maputo.

Year Projects FDI $ mil
1990 31 20
1991 25 21
1992 27 77
1993 29 46
1994 123 136
1995 166 60
1996 270 97
1997 184 558
1998 209 207
1999 235 101
2000 179 239
2001 129 528
2002 128 559
2003 112 122

2004 105 122
2005 139 165
2006 157 162
2007 186 550

2007 Foreign Direct Investment

48. In 2007 CPI approved a total of 186 projects, with a FDI
value of just over USD 5.5 billion. It is estimated that
these approved projects, along with locally sourced direct
investment projects, will create over 19,633 jobs. Of this
amount, U.S. FDI amounted to just over USD 5 billion (for
five projects). The majority of U.S. investment is in the
extractive industries and agriculture. The breakdown of all
projects approved in 2007 (foreign and national) by sector is
as follows:

Sector # of Projects FDI $ mil

Industry 64 192.7
Mining/Energy 5 5.017.0
Agriculture & 16 52.8
Banking/Insur. 3 1.0
Tourism/Hotels 46 138.0
Transport/Comm. 3 25.6
Construction 3 11.4
Aquaculture/ 22 53.6

Total 186 5501.8

49. The following chart shows 2007 CPI-approved foreign
direct investment by province, as well as the estimated
number of jobs that will be created by the all approved
projects (foreign and national), when implemented.

Province # of Projects FDI $ mil. Jobs (est.)

Maputo 77 286.6 9.284
Gaza 17 92.9 693
Nampula 12 5.017.0 1.440
Sofala 14 6.6
Zambezia 6 2.2 758
Inhambane 29 48.4 1.105
Cabo Delgado 6 706.5 77
Manica 16 8.4
Tete 7 199.4 343
Niassa 2 150.0 43
Total 186 5501.8

Foreign Direct Investment In Mozambique

50. Several U.S. companies have investments in Mozambique.
In 1996 Seaboard Corporation (Kansas) purchased a state-owned
flour mill in Beira through the country's privatization of
the state firm, Mobeira. The South African Bottling Company
(SABCO), which is partly owned by Coca-Cola, owns Coca-Cola
bottling plants in Maputo, Chimoio, and Nampula. In
addition, in early 2005 U.S. firms Railroad Development
Corporation (RDC) and Edlow Resources (ERL), together with a
local firm, Manica Freight, won majority shareholder control
of the Nacala Corridor Concession Group and assumed ownership
and management of the Nacala port and railway network.
Chiquita Banana is cooperating on a project to export
bananas from Mozambique. There is an American interest in
Indian Ocean Aquaculture, a shrimp farm project in Cabo
Delgado province.

51. Universal Leaf invested USD 55 million in a tobacco
processing plant in the northern province of Tete through its
Mozambican subsidiary, Mozambican Leaf Tobacco. The
processing plant began operation in 2006. Dunavant
Enterprises, Inc. also has significant investments in
Mozambique and is the main purchaser of Mozambican cotton.

52. American Metals and Coal International has a 5% holding
in a giant coal concession in Moatize, Tete province, with
95% owned by the Brazilian firm Companhia Vale do Rio Doce.
CVRD recently completed the financial and technical
feasibility studies for the Moatize coal project and related
thermal power plant, and has invested USD 80 million to date.
A final decision whether to proceed with the project is
anticipated in 2007.

53. In 2006 Anadarko Petroleum Company (Anadarko) won a
tender to explore for oil and gas in the Rovuma basin off
Mozambique's northernmost province, Cabo Delgado. Anadarko
signed its concession agreement with Mozambique in December

54. The U.S. Embassy in Maputo, Mozambique is able to
provide a comprehensive list of U.S. investments in
Mozambique upon request.

© Scoop Media

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