Transparency of the Regulatory System
Investors face numerous requirements for permits, approvals, and clearances, which often take substantial time and effort to obtain. The complex and multi-stop bureaucratic system creates opportunities for rent-seeking. Labor, health, safety, and environmental regulations may go unenforced or are selectively enforced. In some cases, according to private sector contacts, civil servants have reportedly threatened to enforce antiquated regulations that remain on the books in order to obtain favors or bribes.
The GRM requires businesses in certain sectors to apply for an Environmental License, via the Environmental Impact Evaluation Process, regulated under the Environmental Impact Assessment Regulation (no. 54/2015). The Ministry of Land and Environment and its subordinate institutions and directorates issue licenses following the Environmental Impact Evaluation Process, which entails creation of an Environmental and Social Management Plan (ESMP).
Draft bills are made available for public comment through business associations or in public meetings. The GRM publishes changes to laws and regulations in the National Gazette, which is available electronically. There have been complaints of short comment periods and that comments are not properly reflected in the National Gazette.
Overall fiscal transparency in Mozambique has improved in the wake of the “hidden debts” scandal, which became public in 2016. The GRM reports on public debts, including state-owned enterprise (SOE) debt, in the national budget. However, publicly available budget documents still do not provide a complete picture of the GRM’s revenue streams, particularly regarding SOE earnings, which generally do not have publicly available, audited financial statements. The GRM also maintains off-budget accounts not subject to adequate audit or oversight. For published portions of the budget that were relatively complete, the information provided was generally reliable. The IMF’s ongoing program with Mozambique includes reform measures designed to improve the GRM’s public financial management.
International Regulatory Considerations
Mozambique is a member of the Southern African Development Community (SADC). In 2016, Mozambique, Botswana, Lesotho, Namibia, South Africa, and Eswatini (then-Swaziland), signed an Economic Partnership Agreement (EPA) with the European Union. Mozambique exports aluminum under this EPA agreement. The GRM ratified the World Trade Organization (WTO) Trade Facilitation Agreement (TFA) in July 2016 and notified the WTO in January 2017. The GRM established a National Trade Facilitation Committee to coordinate the implementation of the TFA. The Mozambique National Assembly ratified Mozambique’s participation in the African Continental Free Trade Area (AFCFTA) agreement in December 2022.
Mozambique is a member of the WTO and generally notifies the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations. The National Institute of Standards and Quality (INNOQ, Instituto Nacional de Normalização e Qualidade) falls under the supervision of the Ministry of Industry and Commerce and is the WTO enquiry point for TBT-related issues. INNOQ is a member of the International Standards Organization (ISO) and carries the mandate to issue ISO 9001 certificates. According to the WTO’s, no specific trade concerns have been raised about Mozambique’s TBT measures in the WTO TBT Committee.2017 Trade Policy Review of Mozambique, no specific trade concerns have been raised about Mozambique’s TBT measures in the WTO TBT Committee.
Like most countries in Africa, Mozambique generally bases product standards on existing ISO and International Electrotechnical Commission (IEC) standards.
Legal System and Judicial Independence
Mozambique’s legal system is based on Portuguese civil and customary law. Justice authorities have shown increased willingness to pursue corruption cases in recent years. In December 2022, the Maputo City Judicial Court convicted 11 of 19 defendants in the “hidden debts” trial. The court issued prison sentences and fines for crimes related to these defendants’ facilitation of over $2 billion in state-backed loans to Mozambican SOEs under the guise of developing a tuna fishing fleet and coastal protection system. The former Finance Minister responsible for signing the illicit state-backed loan guarantees remains in custody in South Africa, pending possible extradition to the United States. The General Prosecutor’s office has also pursued suspects in separate corruption-related cases.
Laws and Regulations on Foreign Direct Investment
The GRM is actively working to revise the legal framework governing investments. Currently, the 2009 Code of Fiscal Benefits (no. 4/2009) and 2009 Decree (no. 56/2009) form the legal basis for foreign direct investment in Mozambique. Operating within these regulations, APIEX analyzes the fiscal and customs incentives available for a particular investment. Investors must establish foreign business representation and acquire a commercial representation license. During project development, investors must document their community consultation efforts related to the project. If the investment requires the use of land, the investor must present, among other documents, a topographic plan or an outline of the site where the project will be developed.
If the investment involves an area under 1,000 hectares and the investment is under approximately $25 million, the governor of the province where it will be located can approve the investment. While APIEX has the authority to approve any project up to $40 million, the MEF must approve national or foreign investments between $40 million and $225 million. If the investment occupies an area of 10,000 hectares, or an area greater than 100,000 hectares for a forestry concession, or it amounts to more than $225 million, the Council of Ministers must approve it. APIEX provides additional information regarding Mozambique’s investment requirements.
Competition and Antitrust Laws
The 2013 “Competition Law” (no. 10/2013) established a modern legal framework for competition and created the Competition Regulatory Authority (ARC, Autoridade Reguladora da Concorrência), which started operating in 2021. Violating certain prohibitions in the Competition Law could result in a fine of up to five percent of the company’s annual income. ARC decisions may be appealed in the Judicial Court in Maputo for cases leading to fines or other sanctions, or to the Administrative Court for merger control procedures. As a sign of its independence, in August 2022, the ARC fined the company Dugongo Cimentos, in which a Chinese firm and the ruling party Frelimo have invested, $320,000 for failing to respond to ARC requests related to claims that it undercut cement prices in Maputo province.
Expropriation and Compensation
There have been no significant cases of nationalization since the adoption of the 1990 Constitution. Mozambican law holds that “when 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.”
ICSID Convention and New York Convention
Mozambique has been an ICSID member since 1995. It acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1998. Investment Law (no. no. 3/93) establishes the framework guiding foreign investments in Mozambique.
Investor-State Dispute Settlement
There have been no investment disputes in the past ten years involving U.S. investors under the BIT or otherwise. Investors who feel they have a dispute covered under the BIT should contact the U.S. Embassy. International Alternative Dispute Resolution (ADR) may also be available.
International Commercial Arbitration and Foreign Courts
In 1999 the National Assembly (Parliament) passed the Law on Arbitration (no. 11/99), which allows access to modern commercial arbitration for foreign investors. In 2017, the Judicial Council created the Regulations of Mediation Services (via resolutions no. 1/CJ/2017 and no. 2/CJ/2017), which apply in Judicial Courts and the Judicial Mediators’ Code of Conduct. These resolutions are designed to promote the mediation process as an alternative to litigation. Labor and commercial arbitration are recognized by local courts, as are cases judged internationally.
The Center of Arbitration, Conciliation, and Mediation (CACM, Centro de Arbitragem, Conciliação e Mediação) offers commercial arbitration. In 2021, CACM handled 52 cases of commercial arbitration; at least 23 cases were in process at the time of the last update from CACM in 2022. CACM has 330 arbitrators and mediators, 24 of whom are international. However, use of arbitration is limited, as many contracts do not incorporate a clause that allows conflicts to be resolved via arbitration instead of in the courts.
The GRM adopted a comprehensive legal regime for bankruptcy in 2013 known as the “Insolvency Law” (no. 1/2013). This law streamlines the bankruptcy process, sets the rules for business recovery, facilitates potential recovery for struggling businesses, and establishes legal methods to declare bankruptcy. Under the law, creditors can approve a proposed rescue plan, request that a debtor be declared insolvent, and challenge suspicious transactions.