Investment Guide Mozambique Introduction The Mozambican economy has been growing substantially in the last decade and foreign direct investment is high. The recent discovery of minerals and natural gas will boost the economy in coming years, creating even more business opportunities in the country. In the past Sweden s visibility in Mozambique has mainly related to being a major partner in development cooperation. During the past couple of years, however, Swedish companies have opened offices in Mozambique and expanded business relations and the Swedish business interests are expanding. This investment guide aims at offering basic information, advice and recommendations to Swedish companies considering doing business with, or establishing an office in the rapidly growing Mozambican market 1. For more detailed inquires please contact the Embassy of Sweden in Maputo. businessmaputo@gov.se In the World Bank s Doing Business Report for 2014, Mozambique is ranked 139 out of 185. The index is based on the average of a number of economic indicators. Mozambique ranks for the ten key indicators are: 1. Starting a business (95th) 2. Dealing with construction permits (77th) 3. Access to electricity (171th) 4. Registering property (152th) 5. Access to credit (130th) 6. Protection of investors (52th) 7. Paying taxes (129th) 8. Trading across borders (131th) 9. Enforcing contracts (145th) 10. Resolving insolvency (148th) 1 This investment guide is based on information from the Mozambican Investment Promotion Centre (CPI), World Bank, IMF as well as national and international law firms and consultancy firms present in Mozambique.
2(6) The ranking agencies Fitch and Standard & Poors have placed Mozambique with a B+. See figure 1 below. Economic Freedom Index Corruption Perception Index (Transparency Int.) Fitch B+ Peer Group Mozambique S&P B+ Peer Group Voice and Accountability 60 50 40 30 20 10 0 Political Stability/Absence of Violence Government Effectiveness Control of Corruption Regulatory Quality Rule of Law Strengths and Challenges of the Mozambican Economy Major strengths of the Mozambique market are considered to be: One of the fastest growing economies in sub-saharan Africa. 7% annual growth for more than 10 years and future outlook remains favorable. Portuguese speaking country, however English is accepted as business language. Recent discoveries of minerals (mainly coal and natural gas) estimated as one of the major findings worldwide in recent years. The discovery of natural resources and emerging exploration has created demand for infrastructure including railways, roads, ports and airports. Only 20% of the fertile land is cultivated thus creating great potential for investment in the agro-business, agribusiness and forest industry. Mozambique has huge potential for renewable energy and is a net exporter of hydropower to neighboring countries. Mozambique s coastline of 2 700 km with largely unexploited pristine beaches offers a still untapped potential for the tourism industry. Mozambique has a 2 700 km coastline with a proximity to Southern Asia and China and can offer several deep see ports. Mozambique offers the closest access to the Indian Ocean for several neighboring countries such as Malawi, South Africa, Swaziland, Zambia and Zimbabwe, important for investments in roads/railways. The Maputo Port is the closest port for the important industrial zone of Gauteng in South Africa including Johannesburg.
3(6) Johannesburg, the main commercial hub in Southern Africa is only an hour flight away with several flights daily and within driving distance. Sweden, due to its longstanding ties and development cooperation, is very well seen in Mozambique and Swedish companies and products have a good reputation. Some of the major Swedish companies are already established (Ericsson, ABB, Atlas Copco, Sandvik, Scania, Volvo Equipment, Eltel, SWECO, Vattenfall). Business Sweden Office for Southern Africa is based in Johannesburg. Considerable business opportunities within energy and power, mining, oil & gas, sustainable development, health, education and training, fishing tourism and others areas of tourism. Major challenges of doing business in Mozambique are considered to be: Public finances and balance of payments still depend on donor support and concessional borrowing. Access to finance and banking services. Bureaucracy constraints and corruption Lack of regulatory predictability and transparency. Weak infrastructure delays in infrastructure projects Lack of skilled labor. Health medical facilities very basic and can be very expensive. Mozambique and Sweden An Economic Match Sweden has a long and strong relationship with Mozambique as support was given to Frelimo - being the Mozambican liberation movement - since the 1960s. The Embassy of Sweden in Maputo opened after Independence in 1975 and since then Sweden has been one of the largest bilateral development cooperation partners of Mozambique. Commercial ties between the two countries are still at a low level, but there is a tendency of increased exports from Sweden to Mozambique, for instance in services, machinery, vehicles and other equipment for industry. Sweden and Mozambique have signed in 2007 the Protocol for Reciprocal protection of investment. Business Vehicles There are two main forms of entering in to the Mozambican market, namely: a branch or a limited liability companies. Branches have to be registered with the Ministry of Commerce and Industry. The objective of a branch is usually to execute a specific contract and the activities permitted under the license granted are restricted to the contract(s). The license is valid for 3 years, renewable. A Branch is more appropriate for short duration ventures. Limited Liability companies may have different minimum of shareholders, depending on the specific type chosen.
4(6) Starting a company Starting a company is straightforward if one uses a local firm or agent to represent the company and manage the administrative process. Companies should be prepared to dedicate considerable time to administrative procedures and it is advisable to get help from an agent with a good understanding and connections within the public offices and various administrations. Being physically present in Mozambique is preferable and personal contacts are essential in many business deals. Companies can hire foreign employees with specific qualifications in case there are no, or insufficient number, of Mozambican nationals with the required qualifications. Foreign employees may begin working prior to the issuance of work authorization. The registration of workers and their respective employers with the National Social Security System is mandatory. The fee for social security is 7%, out of which 4% is paid by the employer and 3% by the employee. In Mozambique the business activities can be carried out by individual(s) or commercial companies. Persons who wish to set up a company can choose between two types: LDA - "Sociedade por quotas" SARL - "Sociedade Anonima" The Center for Investment Promotion (CPI) is a key agency for potential investors in Mozambique. To benefit from tax exemptions a project must be registered with CPI. PWC, KPMG, Deloitte, E&Y, Sal&Caldeira can assist your company in entering into the Mozambican market. The Mozambican Confederation of Business Associations (CTA) is a network of several key business and trade organizations that represents the interests of key parts of the private sector. The Commercial and Industrial Association of Sofala (ACIS) is a 300- member strong business organization representing many foreign companies conducting business in Mozambique. Paying taxes The taxation system in the Mozambique integrates national and municipal taxes. The taxes of the national taxation system are classified as direct and indirect, acting at various levels, namely (i) direct taxation on income and wealth and (ii) indirect taxation on expenditure. The direct taxation on incomes include Corporate Income Tax (IRPC) and Personal Income Tax (IRPS). The indirect taxation, i.e. on expenditure, integrates the Value Added Tax (VAT), Specific Consumption Tax (ICE) and Customs Duties.
5(6) The Corporate Income Tax (IRPC) is taxable on incomes gained during the taxation period, from tax payers, namely commercial or civil companies, cooperatives, public companies and other corporates both public and private, entities with no legal personality, whose incomes are not subject to taxation in the form of IRPS. The rate for IRPC is 32 %, but agricultural and cattle breeding benefit from a reduced tax rate of 10 % until 31 December 2015. The Personal Income Tax (IRPS) - is taxable on the global annual value of income and is paid by singular persons residing in the Mozambique. The Value Added Tax (VAT) - taxable on the sale of goods and provision of services in Mozambique by a tax payer acting as such, as well as on importation of goods. The applicable rate for VAT is 17 %. The Specific Consumption Tax (ICE) - is taxable, in a selective manner, on the consumption of certain goods, produced or imported. The general rate of customs duties on consumption goods is 20 %. Customs Duties taxable on imported and exported goods in the customs territory, whose values vary and is 2,5 % for raw materials, 5,0 % for capital goods (class K), 7,5 % for intermediary goods and 20 % for consumption goods. Under the SADC trade protocol implementation framework various products from the SADC region countries benefit from exemptions from payment of customs duties. Foreign Trade Mozambique is rapidly expanding its export base and volumes by adding new commodities and added value products with high demand in regional and global markets. The main exports are aluminium ingots, coal, electrical power, natural gas, titanium, tobacco, sugar, cotton, timber and wood, precious and semi-precious stones, marble, tantalite, prawns, tea, cashew nuts, baby-corn and bananas. Mozambique is still a net importer of finished goods, in particular vehicles and machinery, equipment and accessories, building materials, furniture, medicines, beverages, fuel and clothing. Sweden main export to Mozambique is machinery and telecommunications equipment. Visas An entry visa can be obtained from Mozambican embassies abroad. The visa can also be requested from the National Immigration Directorate in Maputo. Citizens of SADC-countries do not need to apply, however business visa is needed, even though one comes from SADC countries.
6(6) Access to land According to the Constitution of the Republic of Mozambique land is property of the state and can be used on a lease basis. The maximum period of a land lease is 50 years but can be renewed for a further 50-year period upon request. Foreign singular or collective persons may become holders of land use rights, provided they have adequately approved investment projects and use for building and development of real property assets. The land title is transferable if a singular person has been residing in Mozambique for at least five years and for collective persons, if incorporated and registered in Mozambique. The holders of land use rights can transfer infrastructures, buildings and other properties, upon presentation of a public deed preceded by an authorization by a competent state entity. CPI can provide all assistance necessary to ensure that the investor obtains land use rights. Public and private procurement Public procurement is an important element of business in Mozambique, e.g. infrastructure. Good relations with the responsible authorities as well as being on a procurement list of private companies are important elements in winning public or private tenders. The Government has recommended foreign companies operating in Mozambique to give priority to procurements from companies registered in Mozambique. Priority sectors for active partner search The sectors mentioned below are of strategic importance for Mozambique. Based on emerging trends in the private sector in Mozambique there are opportunities for Swedish firms to collaborate with local companies in these areas to increase their competitiveness by improving the efficiency of their production practices, by transferring technology and know-how, by helping to access finance, in the training of staff, in developing products and brands, and in expanding market access. Sweden has an increasing number of small and medium sized enterprises (SMEs), which possess high levels of mobility and ability to adapt technologies and penetrate new markets. These are attributes that help in developing partnerships to grow business in Mozambique. Due to their expertise and comparative advantage Swedish companies may focus on business sectors in Mozambique like: - Service in ICT sector - Infrastructure (roads, ports, bridges and railways) - Processing/manufacturing - Energy/efficiency - Mining, oil and gas - Wood and fishing industry