3. Legal Regime
Transparency of the Regulatory System
Investors face myriad requirements for permits, approvals, and clearances that take substantial time and effort to obtain. The difficulty of navigating the system provides opportunities for corruption and bribery, a scenario that is aggravated by the prevailing low wages for administrative clerks. Labor, health, safety, and environmental regulations often go unenforced, or are selectively enforced. In addition, civil servants have threatened to enforce antiquated regulations that remain on the books to obtain favors or bribes.
The private sector, through the Confederation of Business Associations (CTA, Confederacao das Associacoes Economicas), Mozambique’s primary business and industry association, maintains an ongoing dialogue with the government, holding quarterly meetings with the Prime Minister and an annual meeting with the President. CTA provides feedback to the GRM on laws and regulations that impact the business environment on behalf of its members and other business associations. However, because of its exclusive role in communicating with the government on behalf of the private sector, some businesses have expressed concern that minority voices are not heard and that CTA, because of its close relationship with the government, is no longer an effective advocate.
Draft bills are usually made available for public comments through the business associations or relevant sectors or in public meetings. Changes to laws and regulations are published in the National Gazette. Public comments are usually limited to input from a few private sector organizations, such as CTA. There have been complaints of short comment periods and that comments are not properly reflected in the National Gazette. The government is considering a law that would make public consultation on future legislation mandatory.
Overall fiscal transparency in Mozambique is improving gradually in the wake of the 2016 hidden debt crisis which saw the government own up to contracting around $2 billion dollars in secret loans in 2013 and 2014. Publicly available budget documents provide an incomplete picture of the government’s planned expenditures and revenue streams, especially with regard to natural resource revenues and allocations to and earnings from state-owned enterprises, which generally did not have publicly available audited financial statements. The government also maintains off-budget accounts not subject to adequate audit or oversight. For portions of the budget that were relatively complete, the provided information is generally reliable.
International Regulatory Considerations
Mozambique is a member of SADC (Southern African Development Community). In June 2016, the SADC EPA Group, which includes Mozambique, Botswana, Lesotho, Namibia, South Africa, and Swaziland, signed an Economic Partnership Agreement (EPA) with the European Union. Mozambique exports aluminum under the EPA agreement.
The GRM ratified the Trade Facilitation Agreement (TFA) in July 2016 and notified the WTO in January 2017. A National Trade Facilitation Committee was established to coordinate the implementation of the TFA.
Legal System and Judicial Independence
Mozambique’s legal system is based on Portuguese civil law and customary law. In December 2005, the Parliament approved major revisions to the Commercial Code which went into effect in 2006. The previous Commercial Code was from the colonial period, with clauses dating back to the 19th century, and it did not provide an effective basis for modern commerce or resolution of commercial disputes. In 2018, the Council of Ministers passed new provisions for the Commercial Code, which were debated and approved in Parliament. In recent years Mozambique’s legal system has shown a degree of greater independence, for example pursuing some politically connected former officials and their family members for their role in the hidden debt scandal.
Laws and Regulations on Foreign Direct Investment
The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, and Decree No. 56/2009, approved in October 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 will also have to 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 up to approximately $25 million, the governor of the province where it will be located can approve the investment. There has been no update to the law since the introduction of provincial level State Secretaries with the new government in 2020. APIEX has the authority to approve any project between $25 million-$40 million. The Minister of Economy and Finance must approve national or foreign investment between $40 -$225 million. If the investment (national or foreign) occupies an area of 10,000 hectares or an area superior to 100,000 hectares for a forestry concession, or it amounts to more than $225 million, the project must be approved by the Council of Ministers.
Competition and Anti-Trust Laws
Law 10/2013, passed on April 11, 2013, and known as the Competition Law, established a modern legal framework for competition in Mozambique and created the Competition Regulatory Authority. A budget has still not been allocated to this body, but the government appointed a director in April 2020.
The framework is inspired by the Portuguese competition enforcement system. Violating the prohibitions contained in the Competition Law (either by entering into an illegal agreement or practice or by implementing a concentration subject to mandatory filing) could result in a fine of up to 5 percent of the turnover of the company in the previous year. Competition Regulatory Authority 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.
Expropriation and Compensation
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.” No American companies have been subject to expropriation issues in Mozambique since the adoption of the 1990 Constitution.
ICSID Convention and New York Convention
Mozambique acceded in 1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
For disputes between U.S. and Mozambican companies where a Bilateral Investment Treaty (BIT) violation is alleged, recourse via the international Alternative Dispute Resolution may also be available. No investment disputes in the past ten years have involved U.S. investors. Investors who feel they have a dispute covered under the BIT should contact the U.S. Embassy.
International Commercial Arbitration and Foreign Courts
In 1999, the Parliament passed Law no. 11/99 (Law on Arbitration), which allows access to modern commercial arbitration for foreign investors. The Judicial Council approved Resolutions No. 1/CJ/2017 and No. 2/CJ/2017 in 2017, creating the Regulations of Mediation Services in Judicial Courts and the Judicial Mediators’ Code of Conduct. These new resolutions are designed to promote the mediation process as an alternative to litigation. Labor and commercial arbitration are recognized by local courts as well as cases judged internationally.
The Center of Arbitration, Conciliation, and Mediation (CACM) offers commercial arbitration. During 2019, CACM handled 22 cases of commercial arbitration, and another ten cases are in process. CACM has 316 arbitrators, 12 of which are international. One of the main constraints to the use of arbitration is that many contracts do not incorporate a clause that allows conflicts to be resolved via arbitration instead of in the courts.
In June 2014, the GRM passed a comprehensive legal regime for bankruptcy, streamlining the bankruptcy process and setting the rules for business recovery. Globally, Mozambique stands at 86 of 190 economies on the ease of resolving insolvency issues, according to the 2019 Doing Business Report.
In the 2020 World Bank Doing Business Report, Mozambique ranked 86 overall for resolving insolvency, scoring well above average for sub-Saharan Africa, but below South Africa and Mauritius in the most recent report.
5. Protection of Property Rights
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.