MOZAMBIQUE: An Introduction

The Mozambican Economy 

The IMF revised its forecast for Mozambique’s economic growth in 2025 to 4.3%, below the 5.4% target set in the country’s State Budget. The African Development Bank Group projects that real GDP will increase by an average of 5.2% between 2024 and 2025, driven by the extractives sector, particularly gas production. Growth will be supported by extractives and agriculture on the supply side, and by private consumption and foreign direct investments on the demand side. GDP per capita growth jumped 3.7% year-on-year in Q3 2024 and is expected to grow 4.7% in 2025.

Inflation is expected to average 5.4 % during 2025, pushed mostly by domestic demand during an economic recovery, according to the latest report on the country by the Economist Intelligence Unit (EIU).

The fiscal deficit is projected to be between 1.3% to 3.6% of GDP in 2025. The current account deficit is projected to drastically increase to 35.3% in 2025, given imports of liquefied natural gas (LNG). Headwinds include climate shocks and the insurgency in northern Mozambique. Tailwinds include the LNG sector as an energy supplier for the country’s electrification and just transition, government investment in agricultural productivity, and overall subregional growth, leading to higher usage of Mozambique’s logistics corridors.

According to the Mozambique government, the Economic and Social Plan and State Budget (PESOE) for 2025 aims to set annual macroeconomic targets, to achieve an increase in GDP of 4.2% and to maintain the average annual inflation rate at 10%. In any case, the IMF’s figures, which usually serve as a barometer for the financial world, point to a 4.3% GDP growth in 2025.

According to World Bank Mozambique’s Economic Update notes, growth is expected to accelerate in the medium term, averaging 4.2% in 2025, as demand recovers further and the economy benefits from the start of LNG production in 2024 and anticipates the resumption of larger LNG projects. These are expected to stimulate the extractives sector, increase demand for services, and boost exports. Agricultural output growth is expected to remain significant, subject to favourable weather. However, substantial downside risks remain, including rising international oil and wheat prices owing to the war in Ukraine, natural disasters, and a deterioration in the security situation in northern Mozambique, which may increase public spending pressures, among others.

In 2024, Mozambique and the IMF team reached a staff-level agreement on the economic and financial policies that could support the approval of the Fourth Review under the Extended Credit Facility (ECF) Arrangement, providing Mozambique with immediate access about USD60.03 million. This increase of USD119 million was above all influenced by large-scale projects, which continue to be the largest sources of state revenue. The data is included in the balance sheet of the Economic and Social Plan and State Budget for the third quarter of the current year and which assesses the government’s performance from January to September and the degree of implementation of the Government Five-Year Plan (PQG 2020-2024).

According to the document, the Extractive Industry exported the equivalent of USD2,204.67 million, 57.2% of the total, representing a growth of 3.2% compared to the same period in 2024.

Coal earned the most in this sector, USD1,025.00 million, but fell by 1.8%, followed by natural gas, with a contribution of 33.1%. Agriculture sold goods worth USD217.83 million dollars to the world, representing 5.7% of total exports and an increase of 19.8%. Cashew nuts and cotton saw declines of 28.0% and 70.7%, respectively.

Meanwhile, the manufacturing industry accounted for USD608.29 million in exports, representing 15.8%, despite a 12.2% drop. Aluminum was the main product, followed by sugar, with an increase of 36.4%.

China is one of Mozambique’s largest trading partners, and is also a significant financier and constructor of public infrastructure in the country. It has also been involved in the LNG Rovuma Basin 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 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.

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, the extractive industries, tourism, public infrastructure, natural resources and energy. Investment, including foreign investment, is subject to specific legislation.

The Mozambican government estimates that foreign direct investment (FDI) in the country should more than triple in 2024, driven by the natural gas exploration business, to USD4.537 billion, according to the state budget proposal for 2024.

In May 2024, Portuguese oil and gas company Galp reached an agreement with UAE oil company ADNOC to sell its position in the consortium exploiting natural gas in the Rovuma basin, off the coast of the northern Mozambican province of Cabo Delgado, for almost USF650.7 million. Galp announced that it would sell its 10% stake in Area 4 of the Rovuma Basin in an operation to be finalised by the end of 2024, applying what it referred to as a “disciplined” investment strategy.

Area 4 includes the Coral South floating liquefied natural gas platform (FLNG) which has been operating since 2022 “as well as onshore developments in the prospective Coral North FLNG and Rovuma LNG, both of which are expected to be approved in 2024/2025”.

In the documents supporting the proposal for the PESOE for 2025, the government points to growth in FDI of USD4.778 billion for 2025. Despite the 235% increase, FDI drawn to Mozambique is still unlikely to recover next year from the decline seen in 2022 (USD1.975 billion) and in 2023 (“due to disinvestment by companies in the coal industry”) versus its peak of more than USD5.101 billion in 2021.

According to the documentation, “with regard to foreign direct investment (FDI) for 2024, an improvement is expected, mainly influenced by the resumption of investments by Total Energies in the Rovuma Basin”.

In the PESOE report for 2024, the government also estimates a “notable increase in imports of specialized services by the major projects” underway in the country, as well as the “resumption of operations by Total Energies”, the French multinational’s project in Cabo Delgado.

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 custom duties exemptions, free remittance of funds and the possibility of hiring more foreign workers than those permitted by law.

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 custom duties on imports. The minimum eligible value of direct foreign investment for the purposes of the benefits referred to above is MZN7.5 million (approximately USD117,000 – note that the principle is that at least USD100,000 will be invested).

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

• guarantee of protection of ownership rights;
• guarantee of the transfer of funds (profits or dividends, royalties, amortizations and interest from loans and foreign capital invested and re-exportable abroad; and
• the granting 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 investments carried out in industrial free zones and in special economic zones, regardless of the nationality and the type of investor. However, this legislation will not apply to investments made or to be made in the areas of prospecting, research and production of petroleum and gas and in the 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 the 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.