Despite Mozambique’s longstanding investment potential, the business climate poses distinct challenges. The Central Bank has created a stable, albeit weak, macroeconomic environment, and there appears to be high level political commitment to attracting large scale investments. However, this masks a bureaucracy that remains largely unresponsive to the needs of the private sector, especially small-to-medium-sized enterprises. Most companies cite challenges in the business environment as one of the main challenges in Mozambique, as well as the lack of skilled labor. In addition, a top-down, hierarchical decision-making process can hinder market efficiency.

Labor

Even though Mozambique’s labor force is growing, the labor market is rigid, and well-educated workers are scarce. One of Mozambique’s greatest challenges continues to be a shortage of skills in its workforce, which is reflected in its rank of 181 out of 189 countries on the United Nation’s 2019 Human Development Index. In 2009, the Ministry of Labor began enforcing quotas to limit the hiring of foreign employees, although larger investors and those operating in free trade zones have some flexibility.

Land Rights

The 1997 Land Law grants a land use right (Direito do Uso e Aproveitamento da Terra; DUAT), which is roughly comparable to a lease. Although land can be leased for renewable 50-year periods, DUATs cannot easily be used as collateral for financing. The bureaucratic process of acquiring a DUAT, as well as construction permits, can be lengthy and complicated. Companies are advised to approach the leasing of land with great caution and to consult with local attorneys to ensure sellers are legitimate and transactions are legal.

Infrastructure Deficiencies

Although large improvements are being made, especially in Maputo and other urban centers, most of Mozambique has poor basic infrastructure, from dirt roads to insufficient and unreliable power supply to underdeveloped communications networks. Road infrastructure is generally poor, except for large stretches of the main north-south EN1 highway and the EN4 highway connecting Maputo with the South African border. Cellular telephone coverage is primarily concentrated in urban areas and is sometimes unavailable in rural areas.

Access to Finance

Access to finance is also a major constraint.  Commercial banks generally charge high-interest rates, regardless of the Central Bank’s standing lending facility, making it difficult for SMEs to find affordable financing. Payments for imported goods can be difficult, as foreign currency payments outside the country must be approved by the Central Bank. Moreover, opaque, and bureaucratic import regulations can delay the clearance of goods from the Mozambican Tax Authority.

2022 Russian Invasion of Ukraine and Commodities Price Increases

Russia’s invasion of Ukraine is threatening global food security. In Mozambique, commodity price increases have contributed to inflation, led to labor strikes and service disruptions for public transportation, and threats by the baker’s association to stop bread production. Volatility in the global oil and gas market forced the Government of Mozambique to announce fuel price increases ranging from 5 to 15 percent, effective March 17, despite government efforts to mitigate the domestic impacts of rising prices. Diesel (15% increase), cooking oil (13% increase), and gasoline (12% increase) were the hardest hit. In response, the Government of Mozambique reduced taxes and fees to soften the impact of price increases, including a 5% cut in port handling fees for diesel and gasoline, a 60% drop in logistical infrastructure costs, a 30% reduction in margins for fuel and petroleum product storage facilities, and a 15% cut in margins for both distributors and retailers.

Northern Insurgency

Since October 2017, Islamic extremists have been carrying out attacks on both civilian and military targets in Mozambique’s northern-most Cabo Delgado Province and, to a limited degree, Niassa Province, severely affecting local communities and the ability for businesses to operate in the area. This province is also where major natural gas reserves and minerals are located. As of mid-2022, extremists had carried hundreds of attacks in the area, resulting in about 4,000 deaths, of which approximately half were civilians, and displacing over 900,000 residents.

Lack of Transparency

A lack of transparency in government procurement and slowness in government decision making can delay projects and even make them unsustainable. Mozambican law requires public tenders for any government project valued at more than $10 million, but tenders are often still not issued and some of those that have been issued have not been competed fairly.

Due Diligence Concerns

Due to the frequent use of legitimate businesses to conceal illicit activities, the practice of trade-based money laundering, and systemic corruption across many government sectors, the U.S. law enforcement community urges businesses and investors to practice caution and conduct proper due diligence when engaging in business ventures in Mozambique. By doing so, the best interests of both American and Mozambican trade partners can be promoted.

The U.S. government recommends that American businesses seek assistance from reliable auditing and consulting firms or the U.S. Commercial Service to receive local market counseling and vetting for potential local partners.