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Mozambique

Executive Summary

Mozambique stands on the cusp of transformative economic growth driven by the development of one the largest natural gas discoveries in the world. In the next five years, Mozambique expects to see nearly $60 billion in investment to develop its offshore natural gas reserves and an onshore facility that will convert the gas to liquefied natural gas (LNG) for export to global markets. However, between the combination of the outbreak of COVID-19, an increasingly violent extremist movement in northern Mozambique, and the impact of the global downturn on Mozambique’s resource dependent economy, the start of that transformation is likely to be delayed.

Following three years of slow economic growth, driven by a combination of the lingering impacts of Mozambique’s 2016 hidden debt crisis and the back to back devastating cyclones in 2019, 2020 was supposed to be Mozambique’s breakout year. Throughout 2019 Mozambique made important strides toward realizing its potential.

In June 2019, Anadarko made the Final Investment Decision (FID) on the first of two expected LNG megaprojects. However, nearly a year later, the LNG site (now run by Total) is the center of Mozambique’s COVID-19 outbreak and the violent extremists in the surrounding province have grown in size and effectiveness, declaring themselves an affiliate of the Islamic State and conducting increased attacks throughout the province. Against this backdrop, ExxonMobil, the co-lead of the second major LNG project in northern Mozambique announced in April 2020 that it would delay FID on its project until at least 2021 due to the impact of the COVID-19 pandemic on global commodity prices.

Despite these setbacks, however, there are still reasons for optimism about Mozambique’s mid- term outlook. Following three years of reforms since the hidden debt scandal, Mozambique has made progress in the fight against corruption. Since February 2019, it arrested more than 20 politically connected officials for their role in the scandal and in August 2019, the country adopted a 27 point plan to fight corruption and improve governance with the IMF. Thanks in part to this solid progress, the IMF and Mozambique entered into discussions to re-launch a new lending program, potentially the first non-emergency budgetary assistance to the government in four years. If Mozambique continues on this path of reform, it will be better placed to manage its eventual resource income and attract other investments.

The country has also made significant progress toward consolidating the peace process. In August 2019, the government and the main opposition party signed a ceasefire agreement and peace accord, bringing to an end years of sporadic conflict. These agreements also set the stage for national elections in October 2019 that brought President Nyusi back to power for a second five-year mandate. Despite credible allegations of significant election-related fraud and intimidation, President Nyusi and the opposition leader Ossufo Momade continue to work together to consolidate the peace agreement finalize the disarmament, demobilization, and reintegration of former opposition movement fighters.

As Mozambique looks to its future, U.S. businesses are poised to play a key role in this country’s transformation. In June 2019, Mozambique signed a commercial Memorandum of Understanding with the Department of Commerce, outlining five key areas for investment including energy, infrastructure, financial services, agri-business, tourism and fisheries, opening the door to increased cooperation and U.S. investment. In December, the U.S. government’s Millennium Challenge Corporation also announced that Mozambique was eligible to develop a second compact. While still under development, this compact will make available $350 million or more in targeted development assistance to create the enabling environment for additional investments.

Mozambique offers the experienced investor the potential for high returns, but remains a challenging place to do business. While the country welcomes foreign investment, investors must factor in corruption, an underdeveloped financial system, poor infrastructure, and significant operating costs. Transportation inside the country is slow and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports. Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills. In addition to the LNG and associated industries there are also significant opportunities for investment in the power and infrastructure sectors, particularly related to the reconstruction after Cyclones Idai and Kenneth devastated large swaths of the country in March and April 2019. The agriculture and tourism sectors remain underdeveloped relative to their potential, as do critical services sectors, such as health care.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 146 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 138 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 119 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 332.0 million https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 USD 460 million http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Mozambique welcomes foreign investment and sees it as a key driver of economic growth and job creation. With the exception of a few sectors related to national security, all business sectors are open to foreign investment.

Mozambique’s Law on Investment, Decree No. 3/93, passed in 1993, and its related regulations, govern national and foreign investment. In August 2009, Decree No. 43/2009 replaced earlier amendments from 1993 and 1995, providing new regulations to the Investment Law. In general, large investors receive more support from the government than small and medium-sized investors. Government authorities must approve all foreign and domestic investment requiring guarantees and incentives. Regulations for the Code of Fiscal Benefits were established by Decree No. 56/2009 and approved in October 2009. The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, can be found at: http://investmentpolicyhub.unctad.org/InvestmentLaws/laws/110 .

The Agency for Promotion of Investments and Exports (APIEX, Agencia para a Promocao de Investimentos e Exportacoes) is the primary investor contact within the GRM, operating under the Ministry of Industry and Commerce. Its objective is to promote and facilitate private and public investment. It also oversees the promotion of national exports. APIEX can assist with administrative, financial, and property issues. Through APIEX, investors can receive exemptions from some customs and value-added tax (VAT) duties when importing “class K” equipment, which includes capital investments.

Contact information for APIEX is:

Agency for Promotion of Investments and Exports
http://www.apiex.gov.mz/ 
Rua da Imprensa, 332 (ground floor)
Tel: (+258) 21313310
Ahmed Sekou Toure Ave., 2539
Telephone: (+258) 21 321291
Mobile: (+258 ) 823056432

Limits on Foreign Control and Right to Private Ownership and Establishment

Mozambique investment law and its regulations generally do not distinguish between investor origin or limit foreign ownership or control of companies. With the exception of security, safety, media, entertainment, and certain game hunting concessions, there were no legal requirements that Mozambican citizens own shares of foreign investments until 2011.

Law No. 15/2011, passed in August 2011 and often referred to as the “Mega-Projects Law,” governs public-private partnerships, largescale ventures, and major business concessions. It states that Mozambican persons must hold between 5 percent to 20 percent of the equity capital of the project company. Implementing regulations were approved by the Council of Ministers in June 2012.

Article 4.1 in Law 14/2014, often referred to as the “Petroleum Law,” states that the GRM regulates the exploration, research, production, transportation, trade, refinery, and transformation of liquid hydrocarbons and their by-products, including petrochemical activities. Article 4.6 established the state-owned oil company, the National Hydrocarbon Company (ENH, Empresa National das Hidorcorbonetos) as the government’s exclusive representative for investment and participation in oil and gas projects. ENH typically owns up to 15 percent of shares in oil and gas projects in the country.

Depending on the size of the investment, the government approves both domestic and foreign investments at the provincial or national level–there is no other formal investment screening process.

Other Investment Policy Reviews

Mozambique has undergone investment policy reviews by the following international organizations:

OECD Investment Policy Review (2013)
http://www.oecd.org/daf/inv/investment-policy/mozambique-investment-policy.htm 

WTO Trade Policy review – Report by the Secretariat – Mozambique – Revision (2017) https://www.wto.org/english/tratop_e/tpr_e/tp454_e.htm 

UNCTAD Investment Policy Review (2012) http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=222 

Business Facilitation

APIEX promotes and facilitates investment in Mozambique. It provides multiple services to investors including: incorporation, business licensing, entrance visas, work permits, residence permits, identification and licensing of land, identification of business partners, troubleshooting, project monitoring, and implementation follow-up.

Lengthy registration procedures can be problematic for any investor – national or foreign – but those unfamiliar with Mozambique and the Portuguese language face greater challenges. Some foreign investors find it beneficial to work with a local equity partner familiar with the bureaucracy at the national, provincial, and district levels.

In 2019, Mozambique ranked 135 among 190 countries in the World Bank Doing Business report. Mozambique performs slightly better than the sub-Saharan average for the ease of doing business but below peers such as Botswana and South Africa in the Southern African region. Mozambique ranks 174 out of 190 countries in how easy it is to start a business, taking 17 days to complete the process, requiring 10 procedures, and costing 120 percent of the per capita income. The report also indicates that access to credit and enforcing contracts are comparatively more challenging in Mozambique than most countries. The GRM has made improvements in areas such as getting construction permits and electricity.

Outward Investment

The government does not promote or incentivize outward investment. It also does not restrict domestic investors from investing abroad. The law does request that domestic investors remit investment income from overseas, except for amounts required to pay debts, taxes, or other expenses abroad.

5. Protection of Property Rights

Real Property

The legal system recognizes and protects property rights to buildings and movable property. Private ownership of land, however, is not allowed in Mozambique. Land is owned by the State. The government grants land-use concessions called DUATs (Direitos de Uso e Aproveitamento de Terra, or a land-use title) for periods of up to 50 years, with options to renew for an additional 50 years. Essentially, land-use concessions serve as proxies for land titles. There is no robust market in land use rights and land use titles are not easily transferable. The process to award land concessions is not transparent and the government at times has granted overlapping land concessions that often require lengthy negotiation to resolve. It takes an average of 90 days to issue a land title for most of the concessions. Banks in Mozambique rely on property other than land – cars, private houses, and infrastructure – as collateral, as it is not possible to securitize property for lending purposes.

In urban areas, the DUAT of a plot passes automatically to the purchaser following the sale of a house or building. In rural areas, the purchaser of physical infrastructure or improvements and crops must request authorization from the government for the DUAT to be transferred. This requirement is often cited as a barrier for loans in the agricultural sector and is seen as a potential barrier to investment in the agriculture sector and the transition to more intensive, commercial forms of agriculture.

Investors should be aware of the requirement to obtain endorsement of their projects in terms of land use and allocation at a local level from the affected communities. APIEX assists investors in finding land for development and obtaining appropriate documentation, including agricultural land. The government advises companies on relocating individuals currently occupying land designated for development; however, companies are ultimately responsible for planning and executing resettlement programs.

Intellectual Property Rights

Intellectual property rights (IPR) enforcement in Mozambique remains sporadic and inconsistent. Mozambique’s National Inspectorate of Economic Activities (INAE) has increased seizures, confiscating Hewlett-Packard (HP) toner cartridges, Nike, Adidas, Ralph Lauren, and other falsely branded merchandise in several raids in 2019. However, in general, enforcement and prosecutions are limited. Pirated DVDs and other counterfeit goods are commonly sold in Mozambique.

The Parliament passed a copyright and related rights bill in 2000, which, when combined with the 1999 Industrial Property Act, brought Mozambique into compliance with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The law provides for the security and legal protection of industrial property rights, copyrights, and other related rights. In addition, Mozambique is a signatory to the Bern Convention, as well as the New York and Paris Conventions.

Despite enforceable laws and regulations protecting intellectual property rights (IPR and providing recourse to criminal or administrative courts for IPR violations, it remains difficult for investors to enforce their IPR. The registration process is relatively simple. and private sector organizations have been working with various government entities on an IPR taskforce to combat IPR infringement and related public safety issues stemming from the use of counterfeit products.

Mozambique is not included in he United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/details.jsp?country_code=MZ  .

6. Financial Sector

Capital Markets and Portfolio Investment

The Mozambique Stock Exchange (BVM, Bolsa de Valores de Mocambique) is a public institution under the guardianship of the Minister of Economy and Finance and the supervision of the Central Bank of Mozambique. In general, the BVM is underutilized as a means of financing and investment. However, the government has expressed interest in reforming market rules in an effort to increase capitalization and potentially prepare the ground for new rules that would require foreign companies active in Mozambique to be listed on the local stock exchange. Corporate and government bonds are traded on the BVM and there is only one dealer that operates in the country, with all other brokers incorporated into commercial banks, which act as the primary dealers for treasury bills. The secondary market in Mozambique remains underdeveloped. Available credit instruments include medium and short-term loans, syndicated loans, foreign exchange derivatives, and trade finance instruments, such as letters of credit and credit guarantees. The BVM remains illiquid, in the sense that very limited activity occurs outside the issuing time. Investors tend to hold their instruments until maturity. The market also lacks a bond yield curve as government issuances use a floating price regime for the coupons with no price discovery for tenures above 12 months.

The GRM notified the IMF that it has accepted the obligations of Article VIII sections 2, 3, and 4 of the IMF Articles of Agreement, effective May 20, 2011.

Money and Banking System

According to the Mozambican Association of Banks (AMB) and KPMG, in 2019 the Banco Comercial e de Investimentos SA (BCI), Banco Internacional de Mocambique SA (BIM), and Standard Bank accounted for more than 65% of the total assets, total loans and advances, and total deposits held by commercial banks in Mozambique. In 2018, Mozambique had 669 bank branches, up from 641 in 2017. The majority of these branches is concentrated in major cities and rural districts often have no banks at all. As of December 2019 there were 1790 Automated Teller Machines (ATMs) throughout the country. Thanks to the partnership between mobile communications companies and banks for electronic or mobile-money transactions, the number of services available from ATMs is also increasing.

Credit is allocated on market terms, but eligibility requirements exclude much of the population from obtaining credit. Banks request collateral, but since land cannot be used as collateral, the majority of individuals do not qualify for loans. Foreign investor export activities in critical areas related to food, fuel, and health markets have access to credit in foreign and local currencies. All other sectors have access to credit only in the local currency.

The value of non performing loans increased by 16 percent from 18.6 billion meticais as of December 2017 to 21.5 billion meticais as of December 2018. This increase happened at a time when the value of all loans remained largely unchanged when compared to the previous year. The non performing loans (NPLs) ratio for the sector has slightly improved from 8.3 percent at the end of 2017 to 7.1 percent by December 2018, due in part to write offs.

Foreign Exchange and Remittances

Foreign Exchange

In December 2017, Mozambique approved new exchange control rules in Decree 49/2017. Residents in Mozambique are now required to remit export earnings to Mozambique into an export earnings account in foreign currency, which can only be used for specifically defined purposes. Under the new decree, the mandatory registration of foreign exchange operations will now be processed electronically in real time by the commercial banks. Applications for capital operations are now processed by commercial banks and forwarded to the Central Bank of Mozambique. Foreign direct investment (FDI) up to USD 250,000 no longer requires prior authorization from the Bank of Mozambique and only needs to be registered with the commercial bank handling the transactions. Shareholder and intercompany loans made by foreign entities up to USD 5 million require no authorization from the Central Bank, provided the loans are interest free or lower than the base lending rate for the relevant currency, the repayment period is at least three years, and no other fees or charges apply.

A special foreign exchange regime for oil, gas, and mining sectors allows for greater flexibility in foreign exchange and financing operations. The law, which went into force in January 2018, stipulates that profits from petroleum rights are entirely taxed at an autonomous tax rate of 32 percent. The law also guarantees tax stabilization for up to 10 years, starting from the beginning of commercial production with an investment amount of USD 100 million. The Ministry of Economy and Finance can also approve the use of U.S. dollars, if the company has invested at least USD 500 million and more than 90 percent of its transactions are in U.S. dollars. The law also revoked a 50 percent tax rate reduction related to the production tax that was available when extracted products were used locally.

Remittance Policies

Under the 2017 Decree, there is no longer an obligation to convert 50 percent of export proceeds into the local currency. The new decree only requires that a sufficient quantity be converted into the local currency to cover payments to residents locally.

Sovereign Wealth Funds

The government is exploring establishing a sovereign wealth fund for LNG revenues that are expected in the next decade. Currently there is an off-budget account for capital gains revenues, in particular the approximate USD 830 million the government received following the transfer of Anadarko’s Mozambique assets to Total. The Budget Law authorizes the government to save or spend windfall revenues on investment projects, debt repayment, and emergency programs. However, there are limited details on how off-budget spending should be planned and approved. The Ministry of Economy and Finance is currently leading efforts to develop a proposal for a sovereign wealth fund that it hopes to present to parliament before the end of 2020.

7. State-Owned Enterprises

Mozambique’s State-owned enterprises (SOEs) have their origin in the socialist period directly following independence in 1975, with a variety of SOEs competing with the private sector in the Mozambican economy. Government participation varies depending on the company and sector. SOEs are managed by the Institute for the Management of State Participation (IGEPE – Portuguese acronym). Following past privatization and restructuring programs, IGEPE now holds majority and minority interests in 128 firms, down from 156. IGEPE’s holdings are listed on its website: http://www.igepe.org.mz/ 

Some of the largest SOEs, such as Airports of Mozambique (ADM) and Airlines of Mozambique (Travel – airports and air transportation), and Electricity of Mozambique (Energy & Mining – electrical utility), have monopolies in their respective industries. In some cases, SOEs enter into joint ventures with private firms to deliver certain services. For example, Ports and Railways of Mozambique (CFM-Portuguese acronym) offers concessions for some of its ports and railways. Many SOEs benefit from state subsidies. In some instances, SOEs have benefited from non-compete contracts that should have been competitively tendered. SOE accounts are generally not transparent and not thoroughly audited by the Supreme Audit Institution. SOE debt represents an unknown, but potentially significant liability for the GRM. SOEs were also at the heart of the hidden debt scandal revealed in 2016.

In March 2018, the Parliament passed a new law that broadens the definition of state-owned enterprises (SOEs) to include all public enterprises and shareholding companies. The law seeks to unify SOE oversight and harmonize the corporate governance structure, placing additional financial controls, borrowing limits, and financial analysis and evaluation requirements for borrowing by SOEs. The law requires the oversight authority to publish a consolidated annual report on SOEs, with additional reporting requirements for individual SOEs. The Council of Ministers approved regulations for the SOE law in early 2019, but there has still not been a meaningful increase in public disclosure by the state owned companies.

Privatization Program

Mozambique’s privatization program has been relatively transparent, with tendering procedures that are generally open and competitive. Most remaining parastatals operate as state-owned public utilities, with government oversight and control, making their privatization more politically sensitive. While the government has indicated an intention to include private partners in most of these utility industries, progress has been slow.

8. Responsible Business Conduct

Larger companies and foreign investors in Mozambique tend to follow their own responsible business conduct (RBC) standards. For some large investment projects, RBC-related issues are negotiated directly with the GRM. Responsible business conduct is an increasingly high-profile issue in Mozambique, especially in the extractive industries, with some projects requiring resettlement of communities.

The Government of Mozambique (GRM) joined the Extractive Industries Transparency Initiative (EITI) in May 2009. The EITI Governing Board labeled Mozambique as a compliant country in 2012.

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