General assessment

Mozambique has made remarkable progress in the past two decades to establish the core framework and institutions of a regulated market economy. Essential regulatory reforms have been achieved in the areas of taxation, trade, labour, mining, telecommunication, electricity or the commercial code. The country has come a long way since the end of the civil war, as evidenced by its ability to attract significant FDI inflows and by its strong growth performance. Over a relatively short period of time, Mozambique has succeeded in building its credentials as a credible and stable location for international investors in Southern Africa.

Yet, reforms are far from complete and Mozambique could do much better still in the decades to come. The country still lags behind many of its neighbours on a number of regulatory issues of extreme relevance to the achievement of its development objectives and to the promotion of investment by nationals and foreigners.

Reforms in the regulatory framework for investment should continue unabated in order to protect the national interest – an even bigger need in the face of the rising exploitation of natural resources – promote national and foreign investment, and facilitate business development.

A number of key areas with outstanding issues have been identified in this chapter, including in particular:

(1) the general approach to investment rulemaking; (2) corporate taxation and the structure of tax incentives;

(3) the employment of foreigners and access to skills;

(4) access to land; (5) PPPs and the management of mega-projects; and (6) licensing and inspections. Some aspects of the legal framework remain unnecessarily intrusive on businesses in spite of market-oriented reforms over the past two decades. Similarly, a bias persists among regulatory institutions towards controlling and sanctioning rather than towards monitoring and enforcing while also facilitating and servicing investment.

A crucial overall finding is that the regulatory framework for investment is not sufficiently geared towards helping small and medium businesses emerge, develop and expand. In many respects, they are not put on an equal footing with larger companies, and insufficient consideration is given to their needs and constraints. Much could and should be done to promote the emergence of a stronger SME sector,

underpinned by national and foreign investment alike.

As evidenced in chapter I, mega-projects will never be sufficient to address the country’s development challenges, regardless of how they are regulated and how much FDI is attracted through them. Job creation, economic diversification and poverty reduction require the emergence of a full and deep span of businesses and entrepreneurs, from the micro-level to the mega-projects.

Chapter III builds on the detailed assessment of strengths and weaknesses of this chapter and proposes concrete reforms to the regulatory framework as one component of a strategy to promote foreign and national investment and build linkages between the two. The reforms suggested are geared to benefit and support both national and foreign investors, with a view to helping Mozambique achieve its development goals, key among which are job creation and the reduction of inequality.

Notes

26 The ranking is based to a significant extent (e.g. indicators on starting a business, registering property, paying taxes or trading across borders) on the number of steps or days required to comply with regulatory requirements, few being always better.

Under this benchmark, the purpose or “quality” of the regulation or step cannot be taken into account. As a result, moving up in the ranking cannot be taken per se as an indication of an improved regulatory framework from a policy perspective. It must be noted that some indicators (e.g. protecting investors, getting credit) are of a more qualitative nature. In addition, the World Bank removed its indicator on the ease of hiring and firing workers from its general ranking as the lowest amount of workers’

protection was considered best.

27 With the exception of provisions on transfer rights and international dispute resolution.

28 Article 86 of the Constitution defines three types of sectors based on ownership of production means: (1) public sector; (2) private sector; and (3) cooperative and social sector.

29 (1) production of electrical energy; (2) public supply of water in urban centers; (3) postal services and public telecommunications;

(4) development and operations of national parks; and (5) production, distribution and trade of arms and ammunition.

30 The first indicator measures start-up procedures from a relatively narrow perspective (excluding, for example, access to land and environmental or sectoral permits), while the second assesses the protection of a minority investor through legal requirements on disclosure, director liability and ease of shareholder suit.

31 Industrial establishments are classified as large or medium if they involve investments in excess of $2.5 million or if they employ more than 125 people. Other investments are classified as either small or micro.

32 The environmental management plan is initially prepared as part of the EIA.

33 Source: World Bank (2009). Labour market regulations were cited as a “major or severe obstacle for business” by 5.5 per cent of companies, and the issue ranked 15th out of 16 as top constraints cited.

34 This was confirmed by interviews with the private sector during UNCTAD’s fact-finding mission in Mozambique. In a survey of businesses conducted by “Business Leadership South Africa” in 2007, 65 per cent of respondents reported that they had experienced problems with the recruitment of expatriates.

35 Based on figures from the World Bank (World Bank, 2011b), Mozambique has about 30 million hectares of cropped, non-forested land suitable for agriculture and with a population density below 25 persons per km2. This compares with 100 million ha for Sudan, 88 million ha for Brazil, 78 million ha for the Russian Federation and 46 million for the Democratic Republic of Congo.

36 A company is considered foreign if more than 50 per cent of its capital is owned by non-Mozambicans.

37 Italy, Macao (Special Administrative Region), Mauritius, Portugal, South Africa and the United Arab Emirates.

38 The relief is capped at the lesser of: (1) the amount of tax paid abroad; and (2) the tax that would be due on such income under the Mozambican regime.

39 Rapid development zones include the Zambeze River Valley, the province of Niassa, the district of Nacala, Ilha de Moçambique and Ibo Island. Projects in 19 widely-defined activities in the primary, secondary and tertiary sectors are eligible for the incentives.

40 Companies established outside IFZ that wish to benefit from the specific regime must invest either a minimum of MT25 million ($780 000) or have an installed power capacity of at least 500 kilovolt-ampere.

41 UNCTAD (2007b) and UNCTAD (2008) provide useful policy lessons on how to manage and derive the benefits of FDI in extractive industries and FDI in infrastructure.

42 The curse of natural resources (or paradox of plenty) is a frequently observed phenomenon through which countries with abundant oil and mineral resources fall into poor development outcomes measured in terms of growth, inequality, poverty

reduction or economic diversification. Underlying causes for such poor performances range from conflict, corruption, inadequate revenue management, Dutch disease or insufficient focus on human capital development.

43 World Bank (2009).

44 Corruption ranked 5th in 2008, down from 3rd position in 2003.

45 SADC members are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, the United Republic of Tanzania, Zambia and Zimbabwe.

Investment

strategy