Mozambique’s lengthy coastline, deep-water ports, favorable climate, rich soil, and vast natural resources give the country significant potential, but investors face challenges related to the business environment. The Government of the Republic of Mozambique (GRM) made progress on public financial management reforms and publishing budget and debt figures, took steps to reform State-Owned Enterprises (SOEs), and arrested or prosecuted high-level officials on corruption-related charges. It reached an agreement with the IMF and promoted dialogue with the private sector and donor community on economic reforms. Challenges include Mozambique’s opaque and complicated taxation policies, barriers to private land ownership, corruption, an underdeveloped financial system, high interest rates, poor infrastructure, and difficulties obtaining visas. Infrastructure outside of Maputo is often poor, while bureaucracy and corruption slow trade at many points of entry. Mozambican labor law makes it difficult to hire and fire workers, and court systems are bogged down in labor disputes. The domestic workforce also lacks many advanced skills needed by industry, and the visa regime makes bringing in foreign workers difficult.
Insecurity related to a terrorist insurgency in northern Mozambique has resulted in multi-billion-dollar onshore LNG projects being delayed, although a smaller offshore floating LNG platform remains on track to begin production by October 2022.
The COVID-19 pandemic negatively impacted the extractive industry and tourism sector, and pandemic-related restrictions affected many other economic sectors. Following a recession in 2020, the economy returned to 2.5 percent economic growth in 2021. In 2022, the GRM began to ease some restrictions, although COVID-19 measures have continued to limit the hours restaurants and other businesses can operate and impose testing requirements on travelers.
Mozambique is eager to partner with the United States on climate issues, although it lacks resources. It joined the Agricultural Innovation Mission for Climate (AIM4C) and is considering joining the Global Methane Pledge. As the GRM made progress on rural electrification, it incorporated solar energy and solicited investment for hydropower projects. U.S. development agencies and international financial institutions contributed to energy projects in solar and natural gas. The U.S. Department of Energy helped identify areas where small renewable solar and wind projects could be built alongside agricultural activities. These areas may provide opportunities for sustainable foreign direct investment in the renewable energy market. Mozambique is a growing producer of critical minerals, including graphite, lithium, and titanium. In 2021, Mozambique joined the Kimberley Process Certification Scheme, enabling Mozambique to legally export diamonds.
The GRM worked constructively with the United States and other members of the donor community. In March 2022, it reached an agreement with the IMF for a three-year, $470 million program that aims to reinforce economic recovery while addressing challenges related to debt and financing and encouraging good governance and improved management of public resources. The GRM is working with the U.S. Millennium Challenge Corporation (MCC) towards signing a second MCC compact (Compact II) in 2023. Compact II will entail business-enabling reforms and will undertake investments in Zambézia Province that focus on transportation infrastructure, commercial agriculture, and climate change mitigation. While Compact II is still under development, it has potential to contribute to key sectors and help create an enabling environment for additional investments.
|TI Corruption Perceptions Index||2021||147 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||122 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||$491||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita (USD)||2020||$460||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
5. Protection of Property Rights
6. Financial Sector
While corruption remains a major concern in Mozambique, the GRM has undertaken some steps to address the problem. Working with the IMF, it published the July 2019 , which identifies 29 anti-corruption reform measures. The March 2022 IMF agreement intends to use these measures as benchmarks for subsequent reforms.
The Mozambican judicial system conducted a trial for 19 defendants in the “hidden debts” case, hearing from more than 70 witnesses. The trial was aired publicly in a positive step to counter the perception that senior Mozambican government officials can commit crimes with impunity. The Maputo City Court has set sentences for August 1, 2022; the court has announced it is considering seizing assets of the accused to partially compensate the nation for the over $2 billion in fraudulent state-backed loans.
Mozambique’s civil society and journalists remain vocal on corruption-related issues. Action related to the “hidden debts” scandal is being led by a civil society umbrella organization known as the Budget Monitoring Forum (Forum de Monitoria de Orcamento, FMO) that brings together around 20 different organizations for collective action on transparency and corruption issues. A civil society organization that participates in the FMO, the Center for Public Integrity (CIP), also continues to publicly pressure the GRM to act against corrupt practices. CIP finds that many local businesses are closely linked to the GRM and have little incentive to promote transparency.
10. Political and Security Environment
In July 2021, Mozambican security forces deployed to Cabo Delgado Province were joined by Rwandan and SADC military contingents. Since that time, the combined forces have made security gains against the Islamic State in Mozambique (ISIS-M). However, the ongoing insurgency continues to deter investment in northern Mozambique. Sporadic terrorist attacks continue to occur, mainly against civilians, in the northern provinces. As of mid-2022, TotalEnergies had yet to resume construction of its Area 1 LNG facility following suspension of its operations and declaration of force majeure in April 2021.
The United States designated ISIS-M as a Foreign Terrorist Organization and Specially Designated Global Terrorist Group in March 2021. ISIS provides support to combatants in northern Mozambique and occasionally claims credit for their attacks. Since 2017, the ISIS affiliate carried out more than 500 deliberate attacks against unarmed civilians, causing an estimated 3,100 deaths and up to 800,000 internally displaced persons (IDPs). As of April 2022, the GRM had begun implementing plans to stabilize the region with support from the international donor community and encouraging IDPs to return to their homes.
Following the ceasefire and peace agreement signed in August 2019, Mozambique’s disarmament, demobilization, and re-integration (DDR) of ex-combatants from political opposition group Renamo is nearing conclusion. The October 2021 death of Mariano Nhongo, leader of the Renamo Military Junta splinter group, corresponded with a drop in the number of attacks along major highways in Manica and Sofala provinces.
11. Labor Policies and Practices
According to the International Labor Organization (ILO), an estimated six million Mozambicans, or 80 percent of the economically active population in Mozambique, work in the informal sector. Mozambique’s Ministry of Labor generally had not effectively enforced minimum wage, hour of work, and occupational safety and health standards in the informal economy; labor law is only enforced in the formal sector.
There is an acute shortage of skilled labor in Mozambique. As a result, many employers hire foreign employees who have required skills. The GRM limits the number of expatriates a business can employ in relation to the number of Mozambican citizens it employs. The GRM passed labor regulations in 2016 strengthening the requirement for employers to devise skills transfer programs to train Mozambican nationals to eventually replace the foreign workers.
The constitution and law provide that workers, with limited exceptions, may form and join independent trade unions, conduct legal strikes, and bargain collectively, although unions must be approved by the government. The GRM takes 45 days to register employers’ or workers’ organizations, a delay the ILO has deemed excessive. Approximately three percent of the labor force is affiliated with trade unions. An employee fired with cause does not have a right to severance, while employees terminated without cause do. Unemployment insurance does not exist and there is not a social safety net program for workers laid off for economic reasons. The law does not allow workers to strike until a complex mediation and arbitration process has been conducted, which typically takes two to three weeks. The law also provides for voluntary arbitration for “essential services” personnel monitoring the weather and fuel supply, postal service workers, export-processing-zone workers, and those loading and unloading animals and perishable foodstuffs.
With support from international donors, the GRM is reviewing its Labor Law to align with international conventions related to forced labor, health and safety issues in mining, and the worst forms of child labor. The proposed revisions would extend the maternity leave period from 60 to 90 days; address sexual harassment; incorporate special conditions in the fisheries sector; provide for telework and intermittent work; address suspension of contracts in cases of force majeure or for technological, structural or market reasons; address private employment agencies; and provide for recruitment of retired persons. CTA and donors are applying pressure for the draft law to be reviewed by the Labor Consultative Commission (CCT) then sent to the Council of Ministers and the Parliament for approval.