MOZAMBIQUE: An Introduction

The Mozambican economy 

Economic growth in Mozambique is expected to accelerate to 4.2% in 2021, after it was limited to 1.0% in 2019 due to the impact of cyclones Idai and Kenneth, which caused significant human and material damage in the north and centre of the country, and the global Covid-19 pandemic in 2020 further impacted predicted growth.

Real gross domestic product (GDP) growth is estimated to reach 2%, below the average of 3.7% experienced between 2016 and 2018, and the lowest growth recorded since 2000 when Mozambique experienced devastating floods in the south of the country.

The 'gas city' which will be built in support of the projects will cost at least EUR1.5 billion and will house 150,000 inhabitants. Such works as have already started should continue to take shape, so that everything is ready in time for the start of liquefaction and export of natural gas in 2024.

This will be the largest ongoing investment in the country and should trickle through into several other sectors of the economy.

The final investment decision of the Rovuma Basin natural gas exploration Area 4 consortium led by ExxonMobil and Eni, valued at about USD50 billion (about EUR44.86 billion), was postponed as a response to the global pandemic. LNG production is expected to start by 2022.

Beyond Rovuma, oil companies such as ExxonMobil and Eni are planning to start drilling for oil and gas in the Angoche and Zambezi basins off the coast of central Mozambique.

For Area 1, which has the French group Total as the operator, with a 26.5% stake, the final investment decision was approved in June 2019, with an investment of USD23 billion.

The African Development Bank (AfDB) in Mozambique anticipates a consolidation of economic growth, not only with more robust figures, but with a different configuration, and expects more inclusive growth in more sectors.

China is one of Mozambique’s largest trading partners and is also a large financier and constructor of public infrastructure in Mozambique. It has also been involved in the Rovuma Basin LNG project through the China National Petroleum Corporation group, which has reportedly already invested more than USD5 billion in the consortium of the Area 4 block in the Rovuma Basin, led by the Italian multinational Eni, where the China National Petroleum Corporation has an indirect stake of 20%. South Africa, Portugal, India and Japan are also important trading partners and have been increasing their investments.

Despite significant investment opportunities in various sectors, the trend in recent years has been the influx of foreign investment mainly in the areas of public infrastructure, natural resources and energy, particularly in relation to the construction and rehabilitation of bridges, roads and airports, power generation and transmission facilities ─ mainly through public-private partnerships ─ and the development of Mozambique's extensive coal, graphite, heavy sand, gemstone and natural gas resources.

With regard to power generation projects, there has been renewed interest in the exploration of new and renewable sources of energy, particularly hydro, solar and wind. In June 2018, the first stone was laid for the construction of a 40 MW solar plant in Mocuba, Zambézia Province of Mozambique, a project involving Scatec Solar, KLP Norfund Investments and state-owned company Electricidade de Moçambique (EDM). Since then, French-based renewable energy firm Neon and EDM have been tasked with the development of the country’s largest solar power plant. Construction of the plant began in late 2020.

Foreign investment in Mozambique 

The Government of Mozambique encourages foreign investment, and the country offers significant investment opportunities in various sectors, such as agriculture, fishing and aquaculture, extractive industries, tourism, public infrastructure, natural resources and energy. Investment, including foreign investment, is subject to specific legislation.

In 2019, according to the Bank of Mozambique, the largest destination of foreign direct investment was in the coal industry, followed by investments in transport, warehousing and communications. The basis of development in Mozambique, the agricultural industry, currently receives the least investment.

The Mozambican government approved the Investment Law and Regulation to promote and foster foreign investments in the country, granting various benefits and incentives which include tax and customs duties exemptions, free remittance of funds and the possibility of hiring more foreign workers than those permitted by law. These incentives will vary according to the economic and industrial activity pursued and the region of implementation of the project in the country.

Private foreign and national investments are granted a set of benefits, which include, among others, deductions from the taxable amount in the scope of corporate income tax and exemptions from customs duties on imports. The minimum eligible value of foreign direct investment for the purposes of the benefits referred to above is USD100,000.

Foreign direct investment is considered to be any form of foreign capital contribution for which a pecuniary value can be ascertained, coming from abroad and intended for the realisation of an investment project in Mozambique, through a registered entity operating in Mozambique.

The foreign direct investment can take one of the following forms:

(i) freely convertible currency;

(ii) equipment and relevant spare parts, materials and other imported goods; and

(iii) the granting, in specific cases and under the terms agreed upon and approved by the authorities, of concession rights to use patented technologies or registered trademarks for which remuneration is limited to the participation in the distribution of profits resulting from the activities in which such technologies or trademarks have been or shall be used.

Investment projects approved under the legislation are eligible for the following benefits, based on their location and/or activity:

(i) guarantee of protection of ownership rights;

(ii) guarantee of the transfer of funds (profits or dividends, royalties, amortisations and interest from loans and foreign capital invested and re-exportable abroad); and

(iii) grant of tax benefits.

The Investment Law and the Tax Benefits Code apply to investments of an economic nature carried out in Mozambique which intend to benefit from the guarantees and incentives set above, including those investments carried out in industrial free zones and in special economic zones, regardless of the nationality and the nature of the investor. Notwithstanding, this legislation shall not apply to investments made or to be made in the areas of prospecting, research and production of petroleum and gas and in mineral resources extraction industries, which are governed by sector-specific legislation.

Dispute resolution and bilateral investment treaties

Mozambique is a signatory to the Washington Convention of March 1965 relating to the Settlement of Investment Disputes. Under the investment law, the State agrees to submit disputes with foreign investors to arbitration.

The Investment Law contemplates the following possible arbitration mechanisms:

• Arbitration through the International Centre for Settlement of Investment Disputes (ICSID) under the Washington Convention of March 1965 relating to the Settlement of Investment Disputes (the "ICSID Convention");

• ICSID arbitration under the ICSID Additional Facility Rules to the extent that the investor is a national of a state that is not a signatory to the ICSID Convention; and

• International Chamber of Commerce Arbitration in Paris. The Multilateral Investment Guarantee Agency (MIGA) — a World Bank affiliate ─ insures against political risks in Mozambique.

Foreign investors should also take into consideration the protection provided by bilateral investment treaties when structuring their investments. To date, Mozambique has entered into bilateral investment treaties with the following countries: Algeria, Belgium, China, Cuba, Denmark, Egypt, Finland, France, Germany, India, Indonesia, Italy, Mauritius, the Netherlands, Portugal, South Africa, Spain, Sweden, Switzerland, the United Kingdom, the United States, Vietnam and Zimbabwe.

In addition, it has treaties for the avoidance of double taxation in place with the following countries: Botswana, India, Italy, Macau, Mauritius, Portugal, South Africa, the UAE and Vietnam.