VZCZCXYZ0001
RR RUEHWEB
DE RUEHTO #0104/01 0351232
ZNR UUUUU ZZH
R 041232Z FEB 10
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 1236
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0608
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS MAPUTO 000104
SIPDIS
E.O. 12958: N/A
TAGS: EINV EFIN ETRD OPIC KTDB ECON MZ
SUBJECT: MOZAMBIQUE 2010 INVESTOR CLIMATE STATEMENT
-----------------------------
Openness to Foreign Investment
------------------------------
1. Mozambique encourages foreign direct investment. CPI,
the government's Investment Promotion Center, seeks to bring
investors to Mozambique and should be an 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
E-mail: cpi"at"cpi.co.mz
Internet: www.cpi.co.mz
2. Mozambique's Law on Investment, No. 3/93, dated June 24,
1993, and its related regulations govern foreign investment.
Additional amendments were passed on July 21, 1993, Decree
No. 14/93, and on August 8, 1995, Decree No. 36/95. 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.
3. Government authorities must approve all foreign and
domestic investment requiring guaranties and incentives
provided by the Investment Law and its regulations.
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. The minimum
investment threshold for tax and import incentives is USD
50,000.
4. The World Bank's "Doing Business in 2010" 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, 26 days.
Overall, the ease of starting a business in Mozambique is
ranked at 96 out of 183 countries, up from 143 in 2009. This
improvement is due to the elimination of minimum capital
requirements to start a business and reforms to trading
across borders.
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. The Millennium
Challenge Corporation maintains a list of indicators in the
areas of Ruling Justly, Investing in People, and Economic
Freedom, which can be found at
http://www.mcc.gov/mcc/bm.doc/score-fy10-moza mbique.pdf
--------------------------------
Conversion and Transfer Policies
--------------------------------
6. Currency is freely convertible at banks and exchange
houses. 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
------------------------------
7. 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.
8. While 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."
------------------
Dispute Settlement
------------------
9. 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.
10. 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. Pro-worker regulations mean that "hiring and firing" of
workers is exceedingly difficult in Mozambique.
11. 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 central city of Beira. CACM does not, however,
deal directly with labor issues. From 2009, CACM will also
do labor issues mediation and arbitration. 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. In 2009, a government
decree authorized labor disputes to be mediated by CACM.
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
---------------------------------------
12. 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,
investment in new or rehabilitated projects benefit from a
50% reduction in Corporate Tax Rates during the period
necessary for recovering the investment, which may not exceed
10 years. For investments in the provinces of Niassa, Cabo
Delgado, and Tete, the reduction is 80% of the normal rates.
After the end of the period of tax reductions, additional
benefits, which vary according to the location of the
investment, are granted. Special tax benefits are granted to
investors for the rehabilitation or expansion of operating
projects. 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. However, a handling fee of 1% is
charged on all goods, irrespective of the goods being exempt
from the payment of any import duties of the duty applicable
to 0% goods. 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
zones.
13. 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.
14. In August 2009, Decree 43/2009 created Gazeda, the
Special Economic Zones Office. Both Gazeda and CPI support
and assist investors, however Gazeda focuses its activities
on the Beluluane Industrial Free Zone in Maputo Province and
the Nacala Special Economic Zone, in Nampula Province. The
two zones allow exemptions from customs duties and value
added taxes on imports of equipments and raw materials for
use within the zones.
15. Note: The process of obtaining a visa and related work
permits for foreign workers 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. In 2009, the
Ministry of Labor began enforcing a quota system which
requires the number of foreign employees to be no larger than
10 percent of a company's workforce, depending on the overall
size of the company. Foreign nationals found that the
bureaucratic process and documentary requirements inherent in
requesting or renewing work authorizations through the
Ministry of Labor were exceedingly difficult. Some
investments, covered under separate "mega-project" agreements
are exempted from these quotas; however, in some cases the
Ministry of Labor arbitrarily required the same companies to
comply with foreigner quota regulations.
--------------------------------------------
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. 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.
-----------------------------
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. In addition, Mozambique
is a signatory to the Bern Convention on International
Property Rights, as well as the New York and Paris
conventions.
19. Over the last four 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 of the 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
bribes.
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.
23. Changes to laws and regulations are published in the
National Bulletin. Public comments to proposed new laws and
regulations are usually limited and input may come from a few
private sector associations, such as CTA. CTA is the
organization that officially represents the interests of a
wide number of private sector business associations.
--------------------------------------------- -----
Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----
24. Mozambique has a small capital market of fourteen
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 commercial loans are generally around
22 percent per year. Housing loans are around 15 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, Banco
Opportunidade and Novo Banco, offer micro-credit financing
programs to partially fill this need.
26. 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's principal listing is
Cervejas de Mocambique. The capital base requirement for
listing is USD 1.5 million.
----------------------------------------
Competition from State Owned Enterprises
----------------------------------------
27. Current state owned enterprises have their origin in the
socialist period directly following Mozambique's independence
in 1975. State owned enterprises are divided into two
groups, those wholly owned by the state and those partially
owned by the state. Each enterprise is subordinate to a
specific ministry. There are a variety of state owned
enterprises that compete with the private sector. The
state-owned company, Telecomunicacoes de Mocambique (TDM),
Aeroportos de Mocambique (ADM), Electricidade de Mocambique
(EDM) and Portos e Caminhos de Ferro de Mocambique (CFM) have
a monopolies on certain industries. Some of these state-run
enterprises benefit from state subsidies. The state is
actively involved in the operations of some of these
enterprises.
-------------------------------------
Corporate Social Responsibility (CSR)
-------------------------------------
28. Larger companies and foreign investors are aware of
corporate social responsibility (CSR). Companies practicing
CSR tend to set their own standards. As part of some large
investment projects, CSR related issues are negotiated
directly with the government according to local necessities.
For example, some foreign investors are required to relocate
populations, build houses, schools and health centers for
those displaced by their economic activities.
------------------
Political Violence
------------------
29. The triple elections --- presidential, legislative and
provincial --- conducted on October 28 occured with only few
incidents of localized violence. International electoral
observers noted that undue influence exercised by the ruling
FRELIMO party resulted in an "unlevel playing field."
Supporters of the opposition party RENAMO complained of
intimidation and arbitrary arrests. Newly formed opposition
party MDM was excluded, many say unfairly, from most
legislative contests. RENAMO issued complaints of election
fraud to several agencies. Nonetheless, and despite some
blustering, principally from RENAMO leader Afonso Dhlakama,
no violence has ensued.
30. Labor unions lack the financial and institutional
capacity to muster effective, coordinated efforts among their
members. Protests, when they do occur, rarely turn violent.
There have been work stoppages, usually as a result of
failure to receive salary owed. As in many capital cities,
crime is problematic in Maputo, where carjackings, muggings
and armed home break-ins do occur. An overanxious police
force sometimes responds with inappropriate shows of force,
lacking the sophistication of resorting to violence only as a
last resort. In several instances, the police themselves
have been targeted for assassination by organized crime.
While acts of violence are not unknown in Mozambique, they
have not reached the same scale or frequency as in
neighboring South Africa.
----------
Corruption
----------
31. Mozambique slipped to 130 out of 180 countries ranked on
Transparency International's (TI) 2009 Corruption Perceptions
Index (CPI), down from 111th place in 2007, indicating that
corruption in the country is "rampant."
32. The police continued to be poorly paid and due to low
wages and poor conditions, some police members tipped off
criminals to police operations. Corruption and extortion by
police are widespread, and impunity remains a serious problem.
33. 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, with high-profile arrests of
current and former senior government officials on corruption
charges beginning in 2008. 48 of 49 corruption charges
against Former Interior Minister Almerino Manhenje were
thrown out in 2009 however.
34. 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.
35. 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.
36. 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.
37. Mozambique is a signatory to the United Nations
Convention Against Corruption.
-------------------------------
Bilateral Investment Agreements
-------------------------------
38. In December 1998 Mozambique negotiated a Bilateral
Investment Treaty (BIT) with the United States. 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, meeting most recently in 2009.
OPIC signed an agreement with Mozambique in 1999, later
ratified in 2000.
39. 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
Zimbabwe. Double Taxation Treaties have been agreed with
Portugal, Mauritius, Italy, and the United Arab Emirates.
40. South Africa is Mozambique's biggest trading partner.
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 continues to be a
substantial source of FDI.
--------------------------------------------
OPIC and Other Investment Insurance Programs
--------------------------------------------
41. The Overseas Private Investment Corporation (OPIC) is an
independent U.S. government agency that can assist with
project finance, through loans or loan guaranties, and
political risk insurance in Mozambique, up to a total of USD
400 million for projects with U.S. involvement.
42. Mozambique is a member of the Multilateral Investment
Guarantee Agency (MIGA), part of the World Bank Group.
-----
Labor
-----
43. The estimated work force is approximately 9.6 million,
out of a total population of 21 million. However, only
approximately 16.4% are in salaried positions. In 2008 the
government increased the country's minimum wage by 20% in the
industry and services sectors and by 26% in the agriculture
sector, making the new minimum wage for industry and services
approximately USD 89 a month and the minimum wage for
agricultural workers approximately USD 54 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.
44. 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.
45. 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 to 90 per month depending on the
industry sector. Employers are obliged by law to pay a
social security tax assessed at 7% of the employees' wages.
A maximum of 3% of this is deductible from the employee's
salary, while the remaining 4% is met by the employer.
Foreign resident workers may be exempt if they can
demonstrate participation in an alternate social security
scheme.
46. 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.
47. Mozambique is a signatory to the International Core
Labor Standards.
--------------------------------------
Foreign Trade Zones / Free Trade Zones
--------------------------------------
48. 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
employees. Almost all industries, with the exception of
prospecting and exploration of natural resources, processing
of raw cashew nuts and national seafood, including prawns,
can be authorized under an Industrial Free Zone status.
49. 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.
50. 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.
51. 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 (FDI) Statistics
------------------------------------------
52. Historical Data: The government established the
Investment Promotion Center (CPI) in 1985. From January 1,
1990 through December 31, 2009 CPI approved a total of 3,297
projects (both foreign and national). CPI reported over USD
8 billion in FDI was approved for 861 projects in 2009.
53. From 2005 to 2009 the largest projected FDI investor was
the United States with over USD 5 billion in 15 approved
projects. The second largest was Portugal with almost USD
800 million in 127 projects. The third largest was Norway
with USD 742 million in 2 projects, the fourth largest was
South Africa with USD 424 million in 318 projects. China was
the fifth largest FDI investor with USD 175 million in 41
projects.
54. Many of these approved projects turned out to be smaller
than planned or not implemented, however, while other
projects are not reported to CPI at all. For these reasons,
approved projects do not represent the actual FDI for any
given year.
ROWE