VZCZCXRO3042
PP RUEHDU RUEHJO RUEHMR
DE RUEHTO #0126/01 0261453
ZNR UUUUU ZZH
P 261453Z JAN 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC PRIORITY 4894
INFO RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUCPCIM/CIMS NTDB WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 07 MAPUTO 000126 
 
SIPDIS 
 
SIPDIS 
 
EB/IFD/OIA FOR J. NATHANIEL HATCHER 
AF/S FOR HTREGER AND JMALONEY 
JOHANNESBURG FCS FOR RDONOVAN 
JOHANNESBURG TDA FOR DSHUSTER 
MCC FOR SGAULL 
USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON EFIN ELAB ETRD KTDB MZ PGOV
EINV, USTR, OPIC, USAID 
SUBJECT: MOZAMBIQUE 2006 INVESTMENT CLIMATE STATEMENT 
 
REF: 05 STATE 202943 
 
MAPUTO 00000126  001.2 OF 007 
 
 
2006 Investment Climate Statement - Mozambique 
 
 
Openness to Foreign Investment 
 
Mozambique encourages foreign direct investment.  CPI, the 
government's Investment Promotion Center, seeks to bring 
investors to Mozambique and should be a potential 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) 
Mahomed Rafique Jusob, Director 
Rua da Imprensa, 332 (ground Floor) 
Caixa Postal 4635, Maputo 
Tel: (258) (21) 31-33-75 or 32-24-57 
Fax: (258) (21) 31-33-25 
Internet:  http://www.mozbusiness.gov.mz or www.cpi.co.mz 
 
Mozambique's Law on Investment, No. 3/93, dated June 24, 
1993, governs foreign investment.  Additional amendments were 
passed over the next two years:  Decree No. 14/93 on July 21, 
1993 and decree No. 36/95 on August 8, 1995.  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. 
Working with a local consulting firm or partner familiar with 
the requirements will facilitate the registration process. 
CPI assists 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, who often must endure lengthy, overly bureaucratic 
delays. 
 
The "Doing Business in 2006" (which covers 2005) report by 
the World Bank identifies Mozambique as one of the most 
difficult countries to start a business.  Entrepreneurs can 
expect numerous bureaucratic hurdles that must be overcome 
sequentially to launch a business.  In 2005 the average time 
to open a business was 139 days, although some within the 
business community feel that the process in reality might be 
moving slightly faster.  The government, working with donors, 
hopes to shorten this period considerably in coming years. 
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. 
 
Government authorities must approve all foreign and domestic 
investment.  Currently CPI handles the approval process for 
foreign investors.  The investment approval process is 
automatic within 10 days if no objections are voiced by any 
of the following:  1) the relevant ministries; 2) the 
provincial governor for investments under USD 100,000 or 3) 
the Minister of Planning and Finance for investments between 
USD 100,000 and USD 100 million.  The Council of Ministers 
must review investments over USD 100 million and those 
involving large tracts of land (5,000 hectares for 
agricultural investments, 10,000 hectares for livestock or 
forestry projects).  The Council has 17 working days to voice 
an objection before approval becomes automatic.  The 
government has not yet used these screening mechanisms to 
limit investment or to protect a domestic industry. 
 
 
Conversion and Transfer Policies 
 
MAPUTO 00000126  002.2 OF 007 
 
 
 
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 
 
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. 
 
While there have been no significant cases of nationalization 
since the adoption of the 1990 Constitution, Mozambican law 
holds that "(w)hen deemed absolutely necessary for weighty 
reasons of national interest or public heath and order, the 
nationalization or expropriation of goods and rights shall 
(result in the owner being) entitled to just and equitable 
compensation." 
 
 
Dispute Settlement 
 
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. 
 
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.  The business community is still so small that a 
commercial dispute or accusation of illegal activity can 
seriously damage one's reputation. 
 
In February 1999 the National Assembly passed alternative 
dispute resolution (ADR) legislation. 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 
northern city of Nampula.  CACM does not, however, deal 
directly with labor issues.  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.  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. 
 
 
Performance Requirements and Incentives 
 
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 
 
MAPUTO 00000126  003.2 OF 007 
 
 
reduction in taxes.  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.  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). 
 
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. 
 
Note:  The process of obtaining a visa and related work 
permits 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. 
 
 
Right to Private Ownership and Establishment 
 
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. 
 
 
Protection of Property Rights 
 
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.  Intellectual property right infringement 
is not a significant problem for US companies, however, due 
to the small size of the local market. 
 
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. 
 
Recently 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. 
 
 
Transparency of Regulatory System 
 
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 or offered to facilitate 
transactions. 
 
MAPUTO 00000126  004.2 OF 007 
 
 
 
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. 
 
The government is aware of the problems and has launched a 
donor-funded effort to streamline procedures.  In December 
2005 the National Assembly finally approved a revised 
commercial code.  The new commercial code is seen as a step 
forward in combating many of these issues. 
 
 
Efficient Capital Markets and Portfolio Investment 
 
Mozambique has a small capital market of eleven 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 loans generally fall between 17 and 22 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 and 
NovoBanco, offer micro-credit financing programs to partially 
fill this need.  The tiny stock exchange, founded in October 
1999, lists one company (a brewery, Cervejas de Mocambique) 
and five government bonds. 
 
 
Political Violence 
 
There were few incidents of localized violence prior to the 
2004 general elections. In May 2004 many opposition parties 
and the ruling FRELIMO party subscribed to an electoral code 
of conduct, which was generally upheld during the campaign 
and the elections.  However supporters of the opposition 
party RENAMO complained of intimidation and arbitrary arrests 
during the December 1-2 voting. 
 
Political violence erupted in September 2005 in Mocimboa da 
Praia, a small coastal town in the far north, over the 
special election there to replace the former mayor, who died 
in office.  At least 8 persons were killed and nearly 50 
injured in clashes between FRELIMO and RENAMO supporters. 
However the flare-up apparently was an isolated event; it did 
not provoke demonstrations or violence elsewhere. 
 
Labor unions are becoming less vocal, and still do not have 
the financial and institutional capacity to be very 
effective.  Protests rarely turn violent.  As in many capital 
cities, crime is problematic in Maputo, where carjackings, 
muggings and breaking/entry into homes are commonplace. 
While such acts have been on the rise over the past few 
years, they have not reached the same proportions as in 
neighboring South Africa. 
 
 
Corruption 
 
Corruption is a serious problem in Mozambique.  Bribe-seeking 
activity by officials is common.  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.  Investigations rarely result 
in convictions, unless the accused has relatively minor 
influence, and senior officials are seldom, if ever, 
investigated.  The media is relatively unafraid to report on 
corruption allegations, however. 
 
Over the past three 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 
 
MAPUTO 00000126  005.3 OF 007 
 
 
the Combat of Corruption).  This body is charged with 
investigating and prosecuting corruption-related crimes.  As 
one result of its reorganization in 2005, the office is 
expanding in size by hiring more lawyers. 
 
The National Assembly passed an anti-corruption bill in 2004 
that updated previous antiquated legislation.  Civil society 
has become more vocal on corruption-related issues, with some 
support from the US government.  One US-supported NGO, Etica 
Mocambique, is active in pressuring the government to act 
against corrupt practices.  Etica runs a civic education 
campaign to help citizens identify and protect themselves 
against corrupt officials or activities.  Among other 
achievements, Etica established several corruption reporting 
centers that give citizens free legal advice, and offer a 
mechanism for discreetly reporting corruption-related crimes 
to the Attorney General's office. 
 
Mozambique is a signatory to the Untied Nations Convention 
Against Corruption. 
 
 
Bilateral Investment Agreements 
 
In December 1998 Mozambique negotiated a Bilateral Investment 
Treat (BIT) with the US.  The US. 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. 
 
Mozambique has also signed bilateral investment agreements 
with South Africa, Portugal, Zimbabwe, Mauritius, France, 
Italy, China, Egypt, Indonesia, Algeria, Switzerland, 
Germany, the Netherlands, Sweden, Denmark, the UK and Cuba. 
 
South Africa is Mozambique's biggest trading partner and the 
largest source of foreign investment.  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 and Portugal. 
 The United States is a minor trading partner and has modest 
investments. 
 
 
OPIC and Other Investment Insurance Programs 
 
The Overseas Private Investment Corporation (OPIC) has 
provided financing to two ongoing projects in Mozambique - 
private investment in and management of transportation 
services along the Nacala corridor (port and railway) and 
tourism development on the coast. 
 
Mozambique is a member of the Multilateral Investment 
Guarantee Agency (MIGA), part of the World Bank Group. 
 
 
Labor 
 
The estimated work force is approximately nine million, out 
of a total population of 19 million.  However only 
approximately 500,000 are formally employed.  In 2005 the 
government increased the country's minimum wage by 15%, 
making the new minimum wage for industry and services 
approximately USD 53 a month and the minimum wage for 
agricultural workers approximately USD 38 a month.  This 
minimum wage applies only to those working in the formal 
sector; those working in the informal sector earn 
significantly less.  Many people work several jobs to make 
ends meet, and often grow corn and vegetables on a small plot 
of land for personal consumption.  An estimated 81% of the 
labor force works in agriculture, 6% in industry and 13% in 
services. 
 
Nationwide literacy levels are estimated at 45% (2005 World 
Bank figure), with urban centers accounting for the majority 
 
MAPUTO 00000126  006.2 OF 007 
 
 
of literate adults. 
 
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 new labor legislation currently 
under negotiation, 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 could be 
costly.  A new labor law is expected to pass in 2006.  It is 
likely to significantly reduce the cost of hiring and firing 
workers and to generally make the formal labor market more 
flexible.   It is essential to obtain reliable legal counsel 
on labor code requirements. 
 
 
Foreign-Trade Zones/Free Ports 
 
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 two essential requirements for 
Industrial Free Zone status: job creation for Mozambican 
nationals and the exportation of at least 85% of annual 
production.  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.  The 
processing of cashew nuts, fish and prawns are not acceptable 
industrial free zone activities.  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. 
 
 
Foreign Direct Investment Statistics 
 
Historical Data: The government established the Investment 
Promotion Center (CPI) in 1985.  From January 1, 1990 through 
December 31, 2005 CPI approved a total of approximately 2100 
projects involving over USD 3.6 billion in foreign direct 
investment.   Some of these approved projects turned out to 
be smaller than planned or not implemented at all, for this 
reason, approved projects do not represent the actual FDI for 
any given year. 
 
South Africa, Portugal, the United Kingdom, Japan and Ireland 
have been the top investors in Mozambique.  In 2005, however, 
the top five investors were South Africa, the United Kingdom, 
Zimbabwe, Portugal and Sweden. 
 
The following chart displays foreign direct investment 
approved by the CPI in Mozambique over the last 15 years. 
Most of the investment has been in the south, in and around 
the capital city, Maputo. 
 
Year          Number of Projects          FDI $ mil 
1990          31                          20 
1991          25                          21 
1992          27                          77 
1993          29                          46 
1994          123                         136 
1995          166                         60 
1996          270                         97 
1997          184                         558 
1998          209                         207 
1999          235                         101 
2000          179                         230 
2001          129                         528 
2002          128                         559 
2003          112                         122 
2004          105                         122 
2005          139                         165 
 
MAPUTO 00000126  007.2 OF 007 
 
 
2005 Foreign Direct Investment: 
 
In 2005 CPI approved a total of 139 projects with a FDI value 
of USD 165 million.  It is estimated that these approved 
projects will create over 15,000 jobs.  Of this amount, US. 
FDI amounted to USD 1.6 million (for two projects).  The 
breakdown by sector was as follows: 
 
Sector            Number of Projects          FDI $ Mill. 
 
Industry          36                          16.5 
Mining/Energy     2                           3.8 
Agriculture & 
Agro-Industry     25                          41.4 
Banking/ 
Insurance         1                           1.9 
Tourism/Hotels    38                          84 
Transport/Comm.   7                           4.9 
Construction      7                           4 
Aquaculture/ 
Fishing           3                           0.6 
Other             20                          7.5 
Total             139                         164.5 
 
 
The following chart shows 2005 CPI-approved foreign direct 
investment by province, as well as the estimated number of 
jobs that will be created by the approved projects (if 
implemented). 
 
 
Province       Number of Projects    FDI $ Mill.       Jobs 
(est.) 
 
Maputo         50                    78.6              7,465 
Gaza            9                    42.2              1,119 
Nampula        15                     0.4              1,080 
Sofala         14                    13.2              1,813 
Zambezia        6                     2.3                521 
Inhambane      20                    10.8                984 
Cabo Delgado    5                     4.0                230 
Manica         10                     5.6              1,110 
Tete            6                     2.5                220 
Niassa          4                     5.0                503 
Total         139                   164.5             15,045 
 
 
US. Foreign Direct Investment In Mozambique: 
 
Several US. companies have investments in Mozambique.  In 
1996 Seaboard Corporation (Kansas) purchased a state-owned 
flourmill in Beira through the country's privatization of the 
state firm, Mobeira.  The South African Bottling Company 
(SABCO), which is partly owned by Coca-Cola, owns Coca-Cola 
bottling plants in Maputo, Chimoio, and Nampula that provide 
national coverage.  Another significant US investor is 
Colgate-Palmolive.  In addition, in early 2005, US firms 
Railroad Development Corporation (RDC) and Edlow Resources 
(ERL), majority shareholders in the Nacala Corridor 
Concession Group, assumed ownership and management of the 
Nacala port and railway network.  Other US investments are 
represented in the following ventures: Tenga Ltd., a 
macadamia nut plantation in Niassa province, and Indian Ocean 
Aquaculture (IOA), a shrimp aquaculture project in Cabo 
Delgado.  The US Embassy in Maputo, Mozambique is able to 
provide a list of US investments in Mozambique upon request. 
La Lime