Costs of Compliance: Constraints to Investment in Mozambique · Principal Constraints to Investment in Mozambique ... He thanks Shaun Cawood of BAWG and Alekhine Veloso of Grow Africa

Costs of Compliance:

Principal Constraints to

Investment in Mozambique

JUNE 2016

This publication was produced for review by the United States Agency for International

Development. It was prepared by DAI and Nathan Associates.

ii

Costs of Compliance:

Principal Constraints to Investment

In Mozambique

Program Title: Mozambique Support Program for Economic and

Enterprise Development (SPEED)

Sponsor: USAID/Mozambique

Contract Number: EDH-I-00-06-00004-00/13

Contractor: DAI and Nathan Associates

Date of Publication: June 2016

Author: L. Patrick Hanemann

The author’s views expressed in this publication do not necessarily reflect the views of the United States

Agency for International Development or of the United States Government.

C O S T S O F C O M P L I A N C E : C O N S T R A I N T S T O I N V E S T M E N T I N M O Z A M B I Q U E

Table of Contents

i

Acknowledgements ii

Acronyms 5

Executive Summary 6

Introduction 6

Table 1: LOI Company Investment, Actual vs. Committed, 2013-2015 7

Table 2: Mozambique Agricultural Trade, 2011-2015 8

A. Financing Constraints 10

B. Land Constraints 12

Exhibit 1: Mozambique Project Application and Land Acquisition Processes (CEPAGRI) 13

C. Tax Constraints 14

D. Regulatory Constraints 16

E. Macroeconomic Constraints 16

Exhibit 2: Five-Year Exchange Rate History, US$: Mts, 2012-16 17

F. Security Constraints 18

G. Other Constraints 21

H. Recommendations 23

Appendix I: Mozambique Rank, Enabling the Business of Agriculture, 2016 29

Appendix II: Ease of Doing Business Rankings 31

Appendix III: Mozambique’s Ease of Doing Business Ranks by Category 32

Appendix IV: Time and Costs of Starting a Business in Mozambique 33


ii

Appendix V: Summary of Findings – AgCLIR Mozambique 36

Appendix VI: “What are the Main Constraints You Have Faced?” 41

Appendix VII: Bibliography 43

Acknowledgements This report was prepared for the Business Advisory Working Group (BAWG) of the Grow

Africa/New Alliance LOI companies and the Confederação das Associações Económicas de

Moçambique(CTA) by USAID/Mozambique’s Support Program for Economic and Enterprise

Development (SPEED).

The author wishes to thank all representatives of the Mozambican government, and private sector

communities who took the time to share information with him regarding constraints to

agribusiness investment in Mozambique. He thanks Shaun Cawood of BAWG and Alekhine

Veloso of Grow Africa for their guidance and support throughout this study. Finally, he thanks

Honorata Sulila for her invaluable role in collecting data, verifying information, and organizing

key meetings with stakeholders, as well as her solid research support.


Acronyms

AMPU Autonomous mobile processing unit

APIX Investment Promotion and Major Projects Agency (Senegal)

AU African Union

BAWG Business Advisory Working Group

CDN Corridor de Desenvolvimento do Norte

CEPAGRI Centro de Promocao da Agricultura

CPI Centro de Promocao de Investimentos

CTA Confederação das Associações Económicas de Moçambique

DMML DADTCO Mandioca Mocambique Ltd

DFID Department for International Development (UK)

DPA Direcção Provincial de Agricultura

DUAT Dereito de Uso e Aproveitamento dos Terras

EIA Environmental Impact Assessment

IFC International Finance Corporation

IMF International Monetary Fund

ISPC Imposto Simplificado para Pequenos Contribuintes

LOI Letter of Intent

Mts Mozambican Metical

NBF Nippon Biodiesel Fuel

PEDSA Strategic Plan for Agricultural Development

PNISA National Agriculture Investment Plan

SADC Southern African Development Community

SME Small/Medium Enterprise

SSA Sub-Saharan Africa

USAID United States Agency for International Development

USD United States Dollar

VAT Value Added Tax

Executive Summary

Despite an abundance of arable land, an adequate supply of manpower, and generally good access to

water resources (notwithstanding droughts in portions of the country), recent levels of new agribusiness

investment in Mozambique have been disappointing. Based on interviews with a wide range of

agribusiness companies in Mozambique, and drawing on survey data recently collected by the Grow

Africa/New Alliance group on agribusiness companies which have signed letters of intent with the

Government of Mozambique to undertake or increase their investments in the country, this report itemizes

a series of constraints which have contributed to this investment under-performance in the agribusiness

sector. This constraint analysis covers ground which will be familiar to students of agribusiness in

Mozambique; advocacy groups such as CTA, ACIS and the Business Advisory Working Group have

been working for several years now to reduce the impact of these constraints on the conduct of daily

business. In several cases, including land and regulatory issues, meaningful progress has been made in

reducing the administrative complexities of the process, although further improvement remains needed.

In other cases, however, such as tax treatment and access to finance, there have been few positive

developments.

These investment disincentives have been compounded in recent months by disruptions in the

macroeconomic and security conditions in the country. This report presents a rapid appraisal of the ways

in which these adverse developments have affected current operations and investment prospects in the

agribusiness, tourism and transportation sector. It then offers a series of recommendations designed to

mitigate the negative effects of these different constraints on the investment climate in Mozambique.

Data shows that Mozambique has had years of robust GDP growth, averaging 7%, but due to various

factors, including the decline in the prices of major export commodities, coal, gas and aluminum, the

country has seen a decline that is estimated to be at 5.3% this year1.

Introduction

For many agribusiness investors in Mozambique, these are difficult times. They are unable to attract new

investment capital or to secure bank financing for their operating requirements. They face long delays and

complicated regulations in order to obtain the land they need for their activities. They face long

repayment periods before recovering the VAT payments from which they are officially exempt. They

must deal with a long list of regulations with which they are expected to comply, and divergent

1 IMF Reports 2016


7

interpretations of the same regulations depending upon which local, provincial or national authorities are

responsible for enforcement. They face a national economy which is beset with liquidity problems, and a

currency which has lost more than 50% of its value over the past 24 months. Their activities are hindered

by civil commotion which has placed Mozambique on the International Crisis Group’s “conflict risk

alert” and has led to repeated road closures and attacks against commercial transportation, engendering a

partial paralysis in the circulation of agricultural goods, and the flight of thousands of refugees –

including many smallholder farmers – to neighboring countries in order to escape the threat of this on-

going conflict. In short, these external factors, added to the normal uncertainties of agriculture, combine

to constitute the sort of high-risk environment which investors are typically eager to avoid.

By way of example, in its 2015 stocktaking report, the Grow Africa/New Alliance project surveyed the 41

agribusiness companies in Mozambique that had signed Letters of Intent (LOI) with the government, in

order to track the progress these companies had been able to make over the past three years in meeting

their investment commitments. The results were as follows:

Table 1: LOI Company Investment, Actual vs. Committed, 2013-2015

(all numbers in ‘000)

Total LOI Invested Invested Invested Cumulative % LOI

Commitment 2013 2014 2015 Investment Commitment

Invested

$612,526 $90,846 $23,199 $39,665 $153,710 25%

Source: Grow Africa-2015 LOI Stocktaking Results

Based on the LOI program’s models correlating investment with job creation and smallholder inclusion,

the 75% of investment (amounting to $459 million)2 which remains to be made by the 41 LOI companies

equates to over 23,000 jobs not yet created, and sales opportunities for 8.2 million smallholders not yet

realized. At this pace, and assuming that all of the LOI companies remain in business and meet their full

commitments for investment moving forward, full investment will not be achieved until 2024. Even more

discouraging is the fact that some agribusiness investors are forecasting that 50-60% of current small- and

medium-size agribusiness investors will withdraw from Mozambique as a result of exchange rate

fluctuations, declines in the national economy, civil unrest and other external risk factors. Were this to

occur, within the context of the LOI companies alone (who represent only a small fraction of the entire

SME agribusiness population), Mozambique would stand to suffer a net disinvestment in its agribusiness

sector of more than $90 million, with a loss of 4,500 jobs and lost sales opportunities for 1.6 million

2 Grow Africa 2015 Stocktaking results


8

smallholders3. Meanwhile, as agribusiness investments lag behind initial commitments, Mozambique’s

balance of agricultural trade continues to deteriorate. In 2011, Mozambique’s agricultural exports

amounted to $560 million, while agricultural imports stood at $779 million, leading to a trade deficit of

$219 million4. By 2015, imports had grown to $940 million, while exports had fallen to $348 million,

Table 2: Mozambique Agricultural Trade, 2011-2015

resulting in a 250% increase in Mozambique’s negative balance of trade in agricultural goods. While the

trade deficits were even higher in 2013 and 2014, the dramatic decline in the value of the Metical

beginning in early 2014 should have served to make Mozambique’s exports (including agricultural

exports) more attractive to external buyers, while simultaneously increasing the Mts cost of imports for

Mozambican consumers. Instead, agricultural imports fell by only 14% year-on-year, while exports

declined by 23% over the same period. At a time when current agribusinesses in Mozambique are clearly

unable to take advantage of exchange rate movements to increase their export and domestic market

shares, the importance of new investment in agribusiness takes on heightened importance. But the basic

question remains unanswered: Why are current investors proceeding so slowly, and why is it so difficult

to attract new investors into the sector? The principal objective of this report, funded by USAID and

implemented by the Mozambique Support Program for Economic and Enterprise Development (SPEED),

is to evaluate the obstacles faced by selected private sector companies who have committed themselves to

increasing their investments in Mozambican agribusiness, including several of the companies who have

responded to the efforts of Grow Africa and the New Alliance in Mozambique. This report will focus on

the principal obstacles, constraints and costs which these companies have encountered as they try to

achieve their goals of increased investment in Mozambique’s agribusiness sector. In some cases these

obstacles stem from legal, regulatory and administrative hurdles which agribusinesses in Mozambique

must overcome in order to establish and develop their activities. In other cases, a lack of official policies

to support agribusiness formation and development, or inadequate implementation of such policies, was

found to discourage incremental investment in the agribusiness sector. Beyond the role of government,

there exist still other factors which are felt to limit the effectiveness of pro-agribusiness policies. These

3 Calculations of lost investment values, job losses and lost sales opportunities for smallholders are based on the

Grow Africa 2015 LoI Stocktaking Results across 12 SSA countries, where one new job was created for every $20,000

of incremental investment, and a new smallholder sales opportunity resulted from every $55 of incremental investment.

4 Source: Comtrade – (UNITC/GENEVA)

2011 2012 2013 2014 2015 CAGR

Exports $559,878,000 $344,624,144 $415,990,430 $454,066,115 $347,988,583 -11%

Imports $779,317,000 $801,806,980 $1,055,793,500 $1,093,274,860 $940,124,022 5%

Balance of Trade ($219,439,000) ($457,182,836) ($639,803,070) ($639,208,745) ($592,135,439) 28%Source: COMTRADE (UNITC/GENEVA)


9

factors include, inter alia, inadequate sectoral organization at grower level in order to successfully

aggregate and deliver product to processors, limited access to skilled labor, lack of transparency along

agricultural value chains and poor visibility regarding potential investment and operating partners to spur

further enterprise growth.

With the publication of the Strategic Plan for Agricultural Development, 2010-2019 (PEDSA) in October

of 2010, the Government of Mozambique set out to “incorporate a vision that is shared by key actors

within the sector, creating a harmonized framework that will guide decisions, deal with issues that affect

investor confidence and speed up agricultural competitiveness in a sustainable way by systematizing the

wide range of strategic guidelines for agriculture.” In order to encourage the private sector investments

that would be needed in order to effect these improvements in agricultural competitiveness and efficiency,

the Government released the National Agriculture Investment Plan, 2013-2017 (PNISA) in April of 2012

as “the central instrument to attract investments to the agriculture, fisheries and livestock sectors, to

agriculture extension and research of simple processing technologies, to food conservation, and to the

trade of domestic production within the country and with the members states of SADC, the AU and the

world.”

In recent years, the enabling environment within Mozambique for agribusiness formation and

development has received increasing attention, as evidenced by the following publications:

a. Enabling the Business of Agriculture (World Bank, 2016), where Mozambique is

compared against 39 other countries on the enabling environment for six key

agribusiness variables (seed, fertilizer, machinery, finance, markets, transport).

Mozambique scored well in the seed category, significantly exceeding the Sub-

Saharan Africa (SSA) and global averages with a score of 90.6. The same applied

to Mozambique’s ranking in the markets category, with a score of 83.9. At 60.7,

its score in the transport category was marginally below global and SSA

averages. In the fertilizer category, with a score of 46.1, Mozambique stood

significantly below both the global and SSA averages, while its score of 42.5 in

the machinery category put it below the global average, but slightly above the

SSA average. In the finance category, a score of 29.8 put it significantly below

both the global average and the SSA average. Mozambique’s scorecard can be

seen as Exhibit I.

b. Doing Business 2016: Measuring Regulatory Quality and Efficiency (IFC, 2016),

where Mozambique ranked 133 out of a total of 189 countries in the study.

Mozambique ranked well in the issuance of construction permits (31st), resolving

insolvency (66th) and protecting minority investors (99

th). It performed less well

on registering property (105th), paying taxes (120

th) and trading across borders

(129th). It was seen as weakest in getting credit (152

nd), getting electricity (164

th)

and enforcing contracts (184th). The overall rankings, and Mozambique’s

individual scores, can be seen in Exhibits II, III and IV.

c. AgCLIR Mozambique (USAID, 2011), which set out to address the legal and

institutional environment for doing business in Mozambique’s agriculture sector

with a view toward identifying opportunities for inclusive economic development

and strengthened food security. A summary of the findings of this report on each

of its eight focus areas (Dealing with Licenses, Employing Workers, Getting


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Credit, Paying Taxes, Accessing Market Infrastructure, Trading across Borders,

Enforcing Contracts and Closing a Business) appears as Appendix V.

While these methodologies provide valuable insights into the legal and regulatory frameworks governing

the conduct of agribusiness in Mozambique, they are generally high-level assessments of the official laws

and regulations which reflect the intentions of the national government with regard to agribusiness

investments. Despite the information they contain, there is a tendency in these studies to focus on the

language of the laws and regulations, rather than how these laws and regulations are interpreted and

applied at the provincial and local levels of administration. Changing laws and regulations, without

changing the processes through which they are implemented, often fails to provide relief from the

unexpected delays and expenses which investors dread, and investors indicate is common within the

Mozambican environment. These methodologies share a tendency to understate the differences between

national intention and local and provincial implementation, differences which – based on interviews with

a cross-section of agribusiness companies in Mozambique, including several which have signed Letters

of Intent with the Government of Mozambique under the Grow Africa/New Alliance – materially affect

the ability of agribusiness investors to put their business plans into practice, and to generate the financial

returns which would be needed in order to justify further investment. This report focuses on these

practical impediments to agribusiness success in Mozambique, as described by these agribusiness

companies.

In preparation for the 2016 Grow Africa/New Alliance Annual Report, Mozambique's LOI companies

were surveyed with regard to the status of their programs, near-term investment plans, and principal

constraints they had encountered since signing their letters of intent. This “Cost of Compliance” project

then interviewed 15 of the 41 LOI companies, together with several non-LOI agribusinesses, during the

course of a two-week mission in Mozambique from 17 April through 30 April. Based on information

derived from the Grow Africa/New Alliance survey and these interviews, this report is divided into the

following seven constraint areas:

1. Financing Constraints

2. Land Constraints

3. Tax Constraints

4. Regulatory Constraints

5. Macroeconomic Constraints

6. Security Constraints

7. Other Constraints

By way of reference, the complete list of responses to the Grow Africa/New Alliance question: "What are

the main constraints you have faced?" can be found In Appendix VI.

A. Financing Constraints

Investors need financing both for their initial investments and to meet their subsequent cash flow

requirements for on-going operations. Investors indicate that Mozambique is a difficult place to operate


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for both of these forms of financing. The World Bank’s Enabling the Business of Agriculture 2016 report

appears to concur with this opinion, giving Mozambique a low score of 29.8 points (out of a possible 100

points), based on limited availability and effectiveness of credit unions, agent banking, e-money and

warehouse receipts. In surveys of agribusiness companies which asked how important a role financing

constraints in Mozambique played in discouraging new or additional investment, 18% of respondents

indicated this was the principal factor in a negative investment decision. Within the context of the LOI

companies, this represents a negative decision on $83 million of potential investments, equivalent to the

loss of 4,000 new jobs and lost sales opportunities for 1.5 million smallholders.

With respect to initial investments, there is little, if any, government support for investors who are

seeking local or overseas partners interested in investing in Mozambican agribusiness. This service is

routinely provided by government agencies in other African countries, such as the Investment Promotion

and Major Projects Agency (APIX) in Senegal, which maintain databases of potential investors who have

expressed interest in particular forms of investment or in particular sectors. These agencies assume an

active role in bringing together investment capital and investment ideas in order to encourage the

development of entrepreneurial activities in their countries. While this is the stated objective of the Centro

de Promoção de Investimentos (CPI), CPI does not typically provide identification of partners for local

entrepreneurs or overseas investors, outside of the extractive sectors. Moreover, with its limited budget

(~US$2.5 million/year) CPI appears to have little to provide entrepreneurs with effective matchmaking

services.

With respect to investor access to working capital financing within the Mozambican agricultural

economy, the situation is, if anything, even bleaker than that faced by investors seeking partners with

capital to invest. There is no agricultural bank in Mozambique: Banco Terra, (now Banco Terra

Moçambique) was initially supposed to be the agricultural bank, but sources cite that great losses for

lending to agriculture, forced it to change direction, and be more restrictive in its lending in the sector.

There appears to be no tradition among the country's financial institutions of lending to agriculture or to

agribusinesses on a routine and competitive basis. CEPAGRI has lines of credit in some commercial

banks to specific value chains, but adherence to these loans has been low. Even with these credit lines

banks have little incentive to lend; without changing their requirements for approval, such as 100%

collateral at times, the loan becomes unattractive to the borrower even at lower interest rates.

Land obtained under the DUAT system is not considered to be acceptable as collateral, despite the length

of the concessions, since the land is still owned by the State, and the DUAT holder only has the rights to

use the land. Several LOI companies report that banks are either reluctant to loan to them even at Metical

rates in the range of 25-30%, or unwilling to loan under any conditions, since they consider the risks

within the agriculture sector to be too high. It should be mentioned here that there are exceptions within

the LOI group. A few of the larger companies with multi-year histories of successful economic

performance are able to borrow from local banks at competitive rates; one such company commented that

banks were" fighting over one another" to get his business. For LOI startups and companies that do not fit

this profile, however, the conventional banking sector tends to look upon them with the same disdain it

reserves for smallholders and other high-risk agricultural activities. In the absence of affordable working

capital loans, agribusiness SMEs generally forego alternative sources of working capital loans, and tailor

their working capital expenditures to the cash flows they are able to generate internally. In most instances,

this implies little or no growth for the companies, and leads to further delays in the generation of revenues

and employment and in the expansion of purchases from smallholders.

Donor programs in other African countries have experienced some success with programs tailored to

stimulate commercial bank confidence and interest in making loans to the agricultural sector. It is

surprising, then, to see the relative absence of such programs in Mozambique. While there have been

some halting initiatives (e.g.: USAID’s GAPI program, DFID’s Catalytic Fund) over the past twenty


12

years, the impact of these programs has been limited, and sustainable access by agribusinesses or

smallholders to credit with commercial lenders has not been achieved. This is particularly unusual in

light of the potential role of the LOI companies, since the use of such companies as hubs for the

channeling of credit facilities to smallholders is commonplace elsewhere in the developing world.

In its commitments under the New Alliance framework, the government of Mozambique indicated a

readiness to work toward easing access to credit for agribusinesses by modifying financial regulations to

permit the establishment of private credit ranking agencies, and by enacting mobile finance regulations

that would be risk-based and allow for experimentation and innovation. While the original timeline for

completion of these tasks was set as March of 2013, to date there has been progress in that the private

credit bureau law has been passed, and the government is now working on the regulation, but little

progress on mobile financing regulations. Meanwhile, cash flow problems within the Mozambican

economy have grown particularly acute with regards to convertibility of foreign currency, both inbound

originating from export sales transactions, and outbound destined to meet payables obligations. These

constraints will be discussed in greater detail in the macroeconomic issues section, but need to be

mentioned here as a serious complicating factor for agribusiness entrepreneurs in need of assistance with

short-term liquidity requirements.

In surveys of agribusiness companies which asked how important a role financing constraints in

Mozambique played in discouraging new or additional investment, 18% of respondents indicated this was

the principal factor in a negative investment decision. Within the context of the LOI companies, this

represents a negative decision on $83 million of potential investments, equivalent to 4,000 new jobs and

lost sales opportunities for 1.5 million smallholders.

B. Land Constraints

CPI and the Centro de Promoção da Agricultura (CEPAGRI), the Ministry of Agriculture’s Agribusiness

Promotion Center, have worked to clarify and streamline the steps involved in obtaining the DUAT. As

part of this effort, CEPAGRI distributes the flowchart shown as Exhibit 1 below to potential agribusiness

investors. The issuing of land is now no longer the responsibility of the Ministry of Agriculture and Food

Security, but of the newly (2015) formed Ministry of Land, Environment and Rural Development.

Although currently the same rules for obtaining land still apply, there seems to be some inclination

toward easing the burden currently experienced for obtaining land, and possibly in the future, the

possibility of making land an economic asset.

As illustrated, the process appears to be clear and straightforward. Investors embark simultaneously to

obtain investment approval from CPI, and to obtain the land they need for their investments. These two

approvals proceed in parallel, resulting in CPI approval and provisional DUAT approval in

straightforward fashion. Again, the DUAT is not issued by CPI, but it provides the support to the investor

as far as directing them to the appropriate entity through which the investor will begin the process. As

described by one CPI executive, the timeline for obtaining the provisional DUAT can take as little as

three months, but should not in any event take longer than twelve months. Unfortunately, this does not

appear to be the case in practice. One of the main issues is that in this multiple step process, there is too

much opportunity for independent interpretation of the land law, giving each level discretionary power,

and consequently opportunity for rent seeking. In surveys of agribusiness companies which asked how


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important a role land constraints in Mozambique played in discouraging new or additional investment,

7% of respondents indicated this was the principal factor in a negative investment decision. Within the

context of the LOI companies, this represents a negative decision on $32 million of potential investments,

equivalent to the loss of 1,600 new jobs and lost sales opportunities for 582,000 smallholders.

Exhibit 1: Mozambique Project Application and Land Acquisition Processes (CEPAGRI)

Agricola do Rio Sabie, for example, set out in 2013 with a plan for a 2500 ha dairy cattle and banana

production operation in Maputo Province. Since then Rio Sabie estimates it has spent some $200,000 in

the DUAT process, but – four years after project launch – has seen its request reduced to 473 ha, and has

still not received its provisional DUAT. Despite support from CEPAGRI, community consultations alone


14

took two years to conclude. In the face of these delays, Rio Sabie has, not surprisingly, seen its original

investor group disband, and will now need to develop new sources of investment capital in order to

proceed with the project.

Nippon Biodiesel Fuel, which purchases Jatropha seeds from smallholders in Cabo Delgado and extracts

the oil for use as a biofuel, has encountered a series of problems with its DUATs over the past several

years. In one case the land assigned to NBF was later determined by local officials not to have sufficient

clearance from the road to permit construction of a warehouse. NBF was informed of this problem only

after the company had made payments of 22,500 Mts stemming from community consultation, and

165,000 Mts had been expended in labor and materials for the construction of the warehouse. This

problem was raised in a letter to the administrator of Muidumbe district and director of Direcção

Provincial de Agricultura (DPA), Pemba in February of 2016. NBF still awaits a response with regard to

this dispute. This theme of vulnerability to individual interpretation of DUAT rules by local officials was

cited as a problem by several agribusiness companies in the course of their interviews.

C. Tax Constraints

The foremost tax problems for entrepreneurs in Mozambique center on the value-added tax (VAT).

Although agricultural goods and foodstuffs are considered to be exempt from VAT, regulations in

Mozambique require that virtually all goods pay VAT on their transactions, and then seek reimbursement

from the government tax authority subsequently. Smallholders are expected to participate in this system,

either as formally registered businesses or under the provisions of the Simplified Tax for Small Producers

(ISPC). Anecdotal evidence indicates, however, that most of the country's smallholders remain in the

informal economy, without tax status or the ability to provide commercial invoices or ID. For

agribusinesses which purchase raw product from smallholder farmers, either for sale within the country’s

domestic markets or for export, VAT thus represents a double problem. In surveys of agribusiness

companies which asked how important a role tax constraints in Mozambique played in discouraging new

or additional investment, 2% of respondents indicated this was the principal factor in a negative

investment decision. Within the context of the LOI companies, this represents a negative decision on $9

million of potential investments, equivalent to the loss of 460 new jobs and lost sales opportunities for

164,000 smallholders.

In the first place, on the purchase side of transactions, buyers cannot document their terms of purchase,

including the collection of 17% of the raw product purchase price which should be submitted to the

government by smallholders. Officially, this defect can only be cured by ‘legalization ‘of these

transactions through payment by the buyers of the 20% Taxa Liberatoria, a penalty which would make

the goods prohibitively expensive at resale. While a number of buyers apply the 3% ISPC rate as though

their smallholder suppliers were actually registered under the ISPC system (which they are almost

certainly not), this practice is not sanctioned by Mozambique's tax authorities, and leaves agribusinesses

vulnerable to fines and penalties for misrepresentation and underpayment of tax obligations. Only in the

case of concession crops – – cotton and tobacco – – are buyers authorized to create their own invoices on


15

behalf of their informal suppliers, and thus able to regularize their transactions in full compliance with

current tax regulations. For all other buyers of raw agricultural commodities, the inability to document

purchases from informal vendors other than through payment of the prohibitive Taxa Liberatoria

represents a significant risk of being judged noncompliant with Mozambican tax law which could,

according to a 2012 study of this issue funded by SPEED, result in fines that increase costs by 67%.

In its commitments under the New Alliance framework, the government of Mozambique agreed to

develop and approve invoices that can be issued by purchasing firms on behalf of suppliers (i.e.:

smallholder producers) that are not registered taxpayers, and to develop and approve monitoring and

control procedures to make this invoice system functional5. Although initial agreement called for a

completion date of March 2013, the accommodations which investors seek have not yet been adopted.

On the sale side of their transactions, agribusinesses are expected to pay 17% on the differential between

their costs to acquire the inputs, and the price at which they sell the product on to their customers. In the

case of traders, this base added value is the difference between what they paid their suppliers, and what

they receive from their customers. In the case of producers of agricultural products, the base is interpreted

as the overall value which they receive from their customers. In either case, the agribusiness is expected

to increase its base selling price by the VAT rate of 17%, credit whatever it has already paid to its

supplier(s) in VAT payments on its inputs, and remit the difference to the government. If the goods being

sold are exempt from VAT, as is generally the case for agricultural products, the agribusiness then files

for a refund of its VAT payments to the government tax authority. Many businesses have spoken of

extended delays in the processing by the Government of Mozambique of these refunds. A meeting with

authorities from the Tax Authority confirmed that the timeline for refund of VAT payments is often a

function of the economic condition of the central government. While the International Monetary Fund has

encouraged the government to set aside a protected fund for VAT obligations, it has not been possible to

comply with this request as of now. Meanwhile, agribusiness producers, traders and exporters in

Mozambique are left holding IOUs representing hundreds of millions of Meticais of VAT refunds due

from the government, occasionally for periods of up to five years.

Though less consequential than the VAT issues discussed above, another tax issue concerns the five-year

corporate income tax holiday which CPI can extend to agribusinesses and other entrepreneurial investors.

While this exemption could serve as a useful incentive to investors, the fact that the five-year timeline

begins with the initial CPI contact reduces its attractiveness considerably. Given that 3-4 years may pass

before DUAT formalities have been met and enterprise operations can begin in earnest, agribusiness

investors point out that this benefit, at best, may only cover 12-24 months of revenue-generating

activities, significantly less than the intent of the regulation. Consideration should be given either to

extending the length of the tax holiday, or delaying the start of the coverage period until the enterprise is

fully operational.

5 Source: 2014-2015 Joint New Alliance and Grow Africa Progress Report


16

D. Regulatory Constraints

Mention has already been made of the amount of time agribusiness entrepreneurs spend on issues of

regulatory compliance. In surveys of agribusiness companies which asked how important a role

regulatory constraints in Mozambique played in discouraging new or additional investment, 10% of

respondents indicated this was the principal factor in a negative investment decision. Within the context

of the LOI companies, this represents a negative decision on $46 million of potential investments,

equivalent to the loss of 2,300 new jobs and lost sales opportunities for 836,000 smallholders. While

some of the longer-established firms indicate that the impact of compliance on their schedules is minimal,

others contend that such issues take up 30-40% of their managerial attention. Others go so far as to staff

full departments to deal with compliance matters, or hire consultants to guide them through the

compliance process. This last approach is the one that has been adopted by Chicoa Fish Farm, which is

establishing a commercial tilapia farm in Cahora Bassa. Chicoa's advisers prepared a checklist to assist

Chicoa in monitoring its compliance with all government procedures. There are 69 separate steps listed on

this checklist. Aside from 7 items relating to management accounting and 4 items under the heading of

logistics, the remaining 58 items all relate to compliance issues at the local, provincial or national levels

of government. Were this administrative burden simply a nuisance which agribusinesses must tolerate in

order to conduct business in Mozambique, it would be a cause for some concern. More worrisome,

however, is the opportunity loss which such a burden entails. Management time spent on administrative

compliance issues represents time which cannot be spent conceiving of ways to maximize profit, to

increase employment, to grow topline revenues or to expand into other complementary areas of activity.

Rather than focus full attention on building a business or increasing an investment, agribusiness managers

find themselves, in the American vernacular, “too busy killing alligators to drain the swamp." This

diversion reduces prospects for additional investment, for expanded employment, and for greater rural

prosperity as represented by increased purchase of raw product from smallholders.

On the one hand, the government of Mozambique has a sovereign responsibility to ensure that all

economic actors, including agribusiness investors, comply with the laws and regulations of the land. If the

government's objectives also include the expansion of agribusiness investment in the country, however, as

evidenced by the PEDSA and PNISA documents, then a careful review of administrative requirements

would seem to be in order. In addition to the amount of time which investors say they must dedicate the

compliance issues, many of the complaints regarding the regulatory framework are directed at the lack of

clarity and transparency with which laws and regulations are written, and – to an even greater extent – the

idiosyncratic and confusing interpretation which these laws and regulations are frequently given by local

officials.

E. Macroeconomic Constraints

Effecting meaningful changes to the ways in which the government of Mozambique manages its

macroeconomic issues is certainly beyond the scope of this report. At the same time it would be illogical

to discuss constraints to agribusiness investment without mentioning the two major macroeconomic

issues which Mozambique faces today. In surveys of agribusiness companies which asked how important

a role macroeconomic constraints in Mozambique played in discouraging new or additional investment,


17

7% of respondents indicated this was the principal factor in a negative investment decision. Within the

context of the LOI companies, this represents a negative decision on $32 million of potential investments,

equivalent to the loss of 1,600 new jobs and lost sales opportunities for 582,000 smallholders.

The first of these concerns recent volatility in the value of the Metical. As shown in Exhibit 2 above, the

Metical experienced a period of relative stability, generally trading around the 30:1 level from 2012

through 2014. Beginning in January of 2015, however, the Metical has seen its value progressively

Exhibit 2: Five-Year Exchange Rate History, US$: Mts, 2012-16

Source: OANDA.com

eroded, ultimately arriving near the 55:1 level of in early June 2016 (n.b.: by mid-June, banks were

already trading at 62:1). Within the context of an agricultural sector which inherently carries a relatively

high level of risk and unpredictability, each additional element of risk tends to have a disproportionately

discouraging effect on incremental investment. There are those within the LOI group of companies who

believes that 50-60% of SME agribusinesses will fail in the face of these unexpected currency

fluctuations. At the least, investors have seen the value of their Metical-denominated investments and

local profits virtually cut in half. Over time, export-oriented agribusinesses should find that this

devaluation will work in their favor, and domestic-oriented entrepreneurs will seek out ways to reduce

their dependence on dollar-denominated inputs. At present, however, this volatility and unpredictability

preclude any sort of planned response, and appear to generate more anxiety over current investments than

resolve as regards future investments. It is unlikely that any significant incremental investments will be

made in the agribusiness sector until this volatility is brought back under control.

The second major macroeconomic issue of concern in Mozambique relates to the recent decision by the

International Monetary Fund, the World Bank and the G14 Countries (the 14 countries which provide

direct budget support to the Mozambican government, amounting to approximately 12% of the state

budget.) to suspend financial support to Mozambique after determining that Mozambique had violated


18

terms of its borrowing agreement with the IMF by failing to disclose more than $1 billion in loans to the

country by Credit Suisse and Russia’s VTB Group. The United States, which is not part of the G14 but is

Mozambique’s biggest donor, supports the country through programs, but has decided to suspend its

support as well. While it is hoped that this suspension will be temporary in nature, resumption of financial

support will surely be contingent upon full disclosure of all outstanding obligations, together with a plan

to bring the country’s indebtedness down to what is considered an acceptable level over the course of the

coming years. While the exact dimensions of this plan cannot be known at this time, investors have every

reason to believe that it will include reductions in expenditures for infrastructure and other investor-

favored activities, along with an increased appetite for collections in order to meet the debt reduction

targets which the plan will certainly include. In brief, the situation is designed to heighten investor

insecurity over the near-term, and to discourage incremental investment until such time as the terms of the

resumption negotiations become public.

This public debt issue further aggravates the currency situation as the country is increasingly seen as

likely to default on its debt. Debt payments are putting pressure on the foreign currency available in the

market, and more recent revelations of other debts have led to Mozambique’s credit rating being

drastically reduced to CCC by S&P, under negative watch. The implications of these factors are

tremendously negative for the economy, and extremely unattractive to investments in a country that has

for years been a “poster child” as a target for investment in the developing world.

F. Security Constraints

The General Peace Accord, signed by the Government of Mozambique and Renamo in Rome in 1992,

brought to an end 16 years of civil war which had seen the country’s agro-economy brought to its knees.

Elections since 1992 have seen the majority party, Frelimo, maintain control of the Presidency and

steadily increase its majority in the country’s parliament. Despite its waning electoral successes in

national polls, however, Renamo has continued to demand broader participation in the government, and to

protest what it believes to be non-fulfillment by the government of commitments made in the negotiations

leading up to the 1992 agreement, most particularly concerning the integration of Renamo’s military

forces into the national armed service. These resentments have generally simmered in the background of

Mozambican politics, with occasional flare-ups of armed violence, usually in conjunction with the results

of elections further solidifying Frelimo’s hold on national power, accompanied by claims of electoral

fraud by Renamo. Such a flare-up came after the elections of October 2014, where Frelimo won the

presidential election and increased its share of parliamentary delegates, but where Renamo managed to

win majorities in six provinces of central and northern Mozambique, including Nampula, Tete, Zambezia,

Sofala and Manica. Unsuccessful in leveraging these successes at the provincial level into political power

at the national level, Renamo took up arms in June of 2015, and threatened to seize control of the six

provinces where it had gained a majority. Media6 from outside of Mozambique indicate that there have

6Daily Nation (Kenya), 18 March 2016


19

been “daily clashes” between government forces and Renamo since February, particularly in the center of

the country.

Disruption to the normal South-North flow of people and goods has been acute over the past six months,

with road attacks occurring on a regular basis, often accompanied by military and civilian casualties. The

resulting disruption to normal traffic patterns has been significant, converting sections of the EN1 (the

road that connects the South to the North of the country) into what one foreign newspaper report7 termed

a “ghost road”. Passenger bus traffic has been sharply curtailed. Discussions with bus operators indicate

that north-south voyages which normally required 24 hours are now, because of convoy-related delays,

taking 72 hours instead. Moreover, occupancy has dropped from an average of 40-50 passengers per

voyage down to an average of 5-10 passengers per voyage. If we assume that there are 20 companies

operating bus services, each company providing one bus, and a steady tariff of Mts 2400 for the trip

between Maputo and Quelimane, we arrive at an average daily revenue of Mts 2,160,000 under normal

circumstances (45 passengers each in 20 busses at Mts. 2400/passenger). At current transit times and

occupancy rates, the average daily revenue for the sector has declined to Mts 120,000 (7.5 passengers in

each of 20 busses, with each trip taking 3 days instead of 1). Under these assumptions, the cost of the

conflict for the passenger bus sector, in terms of actual vs. potential revenues, would amount to Mts

714,000,000 per year or a loss of Mts 35,700,000 per company per year for as long as the conflict lasts.

Truckers are increasingly reluctant to face the hardships of hauling goods from Maputo up to the Northern

provinces. If they do take on such loads, they are required to travel in convoys; delays in organizing such

convoys, and the slow pace at which they move, can mean days, if not weeks, of delays in the shipment of

goods from South Africa – the principal origin for packing materials and many agricultural inputs – to

agribusinesses in Nampula or Tete. For certain critical supplies, agribusinesses whose overland shipments

have been curtailed must now rely on air freight shipments to pick up the slack. Congestion for cargo

space out of Maputo airport can now lead to delays of as much as 2-3 weeks before air cargo space

becomes available. Where the goods being shipped are perishable, the disruption is even more severe. In

February and March, for example, poultry suppliers in the southern provinces could not ship their day-old

chicks to breeders in the north8. As a result, suppliers were forced to destroy 200,000 chicks per week for

a period of eight weeks, at an estimated cost of Mts 5 million per week, or Mts 40 million over the eight-

week period. By the time suppliers reached the month of April with no relief in the violence in sight, most

suppliers decided to reduce their day-old chick production by 50%, leaving them with insufficient

revenues to pay off their loan obligations.

Frozen chicken producers in the south have not fared any better. Cut off from their northern markets,

suppliers could not sustain efficient levels of slaughter or sale; as a consequence, the poultry association

estimates that 30% of poultry processors have been forced to suspend their operations until such time as

7 Daily Mail (UK), 17 March 2016

8 Source: Mozambican Poultry Association


20

the situation improves. Similarly, shipments of highly perishable tilapia fingerlings from Vilanaculos to

Cahora Bassa now require an additional 48-72 hours of transit time. This leads to increased mortality

rates, and lower productivity per truckload purchased by the fish farm.

Another source of disruption from the conflict situation in the north involves its effect on physical safety

of smallholders, and their ability to remain in production in the face of increasing levels of violence. One

prominent supplier of fresh pre-cut vegetables to northern gas and mining companies has had to endure

the disappearance of his outgrower sources of supply, as smallholder farmers with whom he has worked

for years have been forced to abandon their fields and move their families to safety. His situation has been

further compromised by the decline in exchange rates which make it impossible for him to import fruits

and vegetables, or for his customers to pay for them with their reduced metical purchasing power; by

armed attacks on his trucks on their way to make deliveries; by the refusal of banks to provide even the

most secure of working capital loans; by protracted delays in clearing imports at the borders by the

customs service; and by the impossibility of attracting any new FDI into the highly uncertain environment

in Northern Mozambique. In short, this operator is actively seeking pathways for reducing his

investments in Mozambique and reinvesting to build this same model of business in neighboring

countries where overall conditions are more favorable. The loss of this company alone would leave 40

employees without jobs, and more than 300 smallholders without outlets for their production.

In surveys of agribusiness companies which asked how important a role security constraints in

Mozambique played in discouraging new or additional investment, 4% of respondents indicated this was

the principal factor in a negative investment decision. Within the context of the LOI companies, this

represents a negative decision on $18 million of potential investments, equivalent to the loss of 900 new

jobs and lost sales opportunities for 327,000 smallholders. It should also be noted that these surveys were

taken prior to the most recent escalation of the conflict in the north. Given the disruption to the

agribusiness sector which the conflict has caused over the past six months, it is reasonable to assume that

the weighting which companies would assign to this constraint today would be substantially higher.

Sources within the agribusiness sector have estimated that 50-60% of the SME investors in the sector

might follow suit by disinvesting in Mozambique and relocating their investments to other countries. If

this estimate were to materialize, the loss of agribusiness investment solely within the 41-company LOI

group would amount to a withdrawal of $76 – 92 million of investment capital, carrying with it a loss of

3,800 – 4,600 jobs and lost sales opportunities for 1.4 – 1.7 million smallholders.

Outside the agribusiness and transportation sectors, this civil commotion is also wreaking havoc with the

tourism industry, particularly among hotel and guest house operators along the Inhambane coast. One

hotelier located north of Vilanculos reports that his hopes for 100% occupancy during the months of

February through April were dashed as guests from Malawi and Zimbabwe were forced to cancel their

bookings rather than face violence on the journey to the lodge. The manager indicates that occupancy

rates for his sector, which normally run at 30-35% on an annualized basis, will struggle to reach 10% this

year. For this particular lodge, that will mean a decline of 72% in revenues compared with last year. The

lodge has slashed its payroll by 50%, and lives on the hope that the conflict will be resolved before next

year’s high season begins. According to statistics compiled by the World Tourism and Travel Council,


21

tourism in Mozambique generated direct employment of 280,000 jobs in 2015, with indirect employment

reaching an estimated 745,000 positions. These employment figures were accompanied in 2015 by capital

investments of $200, 000,000, and a contribution to Gross National Product of $470,000,000. Were the

projected 72% decline in Vilanculos in revenues and employment to be extrapolated to the tourism and

travel sector at large, 201,000 direct jobs and $338,000,000 in revenues could be lost.

Given the losses the country is experiencing due to the decline in the prices of its major export

commodities, the tourism industry, where Mozambique boasts exceptional potential, would be the hope

for continued revenues. More recently news of hotels, lodges, and other tourist locations closing,

reducing staff, not paying their workers, have become more common.9 Countries are issuing travel

warnings against Mozambique to their citizens, but to make matters worse, domestic tourism has also

reduced (mainly due to the internal restrictions on travel, brought about by the attacks on passenger

buses).

G. Other Constraints

In addition to the six major constraints listed above, there are a number of other constraints/issues which

were raised by the companies which participated in the preparation of this report, and which are addressed

individually here below:

a. Guía: as part of its engagement with Grow Africa/New Alliance, the government of Mozambique

undertook to promote the liberalization and facilitation of trade and marketing of agricultural

products, especially for smallholder farmers. One of the policy actions foreseen under this

objective was elimination, by June of 2013, of permit (guia) requirements for inter-district trade

in agricultural commodities. Regrettably, guia requirements remain generally in effect for

agricultural goods moving from one province to another. Moreover, documentation requirements

for the same cargo can vary from one province to another. In the words of one LOI entrepreneur,

“It usually takes four loads to figure out what each province requires in terms of documentation."

At the very least, the delays involved in preparing documents and in figuring out each province's

requirements leads to increased costs for product transportation, as well as delays in product

arrival. For perishable agricultural goods, these delays can easily lead to partial or total loss of

cargo value.

b. Hybrid seeds: several seed entrepreneurs spoke of the disruption caused by the continuing

distribution of free or discounted seed to farmers by the government and by donors. While such

programs are invariably well intentioned, they can prove highly disruptive to existing seed value

chains. On one hand distribution of free seed leads to a disinclination on the part of farmers to

pay money for seed which they procure to complement the donations they receive, or for the

9 O Pais Economic supplement 10 June


22

crops of subsequent campaigns. On the other these free seed programs, since they typically

involve unimproved seed lines, only serve to compound the low productivity levels which plague

Mozambican agriculture. One LOI seed producer spoke of a field trial he had sponsored pitting 1

ha of his hybrid soybean seed against unimproved soybean seed which had been distributed by a

donor. The farmer who used his seed generated 1.2 tons per hectare, while the farmers who had

‘benefited’ from donor largesse averaged only 100 KG per hectare. The opportunity loss nation-

wide of failing to capitalize on the potential of this 12-fold productivity boost in incalculable. The

government of Mozambique indicated its readiness to systematically cease distribution of free

and unimproved seeds except for pre-identified staple crops in emergency situations. Despite

these assurances, such distribution continues to this day. At the least, the government should

attempt, and should so encourage donors, to procure hybrid seed from certified vendors wherever

possible.

c. Kudumba: while the notion of noninvasive inspections at ports of loading is an attractive one,

implementation of the system has been spotty. Exporters and vessel operators alike are disturbed

by the delays created by the system as a result of equipment breakdown, operator error, and

insufficient staffing. Each hour of delay in sailing creates incremental costs for vessel operators,

which they must try to recover through increases in rates. Each container which misses a sailing

as a result of Kudumba delays represents lost revenues both for the shipper and for the port and

customs authorities. The operators of the Kudumba need to be held accountable for the reliability

and punctuality of the services they provide. Also cited was the issue of companies being charged

for trucks that do not go through the inspection, greatly increasing costs for services that were not

rendered.

d. Vessel Schedules: given the disparity between service levels at the port of Maputo and the port of

Durban, dispatch of laden containers may, from time to time, require overland shipment to

Durban in order to meet contractual delivery schedules. While this may not be optimal from the

viewpoint of port utilization, the benefits of timely fulfillment will accrue to Mozambican farmers

and Mozambican agribusiness entrepreneurs alike. At present the cost of such overland shipment

is inflated due to the requirement by the Republic of South Africa that a bond be paid on all

overland shipments via Durban originating from Mozambique. Efforts should be made to

negotiate an intergovernmental agreement pursuant to a reduction in bonding requirements. At

the same time, more affordable avenues for obtaining such bonds should also be developed.

e. Grower organization: agribusiness entrepreneurs cite the lack of producer aggregation as an

important disincentive to working with Mozambican smallholders, and indicate that value chains

could be managed much more effectively if smallholders could be grouped together to facilitate

procurement and collection activities. While smallholder aggregation may be no easier for the

Ministry of Agriculture than for individual entrepreneurs, the fact remains that this function is

typically performed by ag ministries throughout the continent. Whoever is responsible for this

activity, smallholder aggregation will become an increasingly vital element to the establishment

of efficient agricultural value chains in Mozambique.


23

f. Environmental Impact Assessments (EIAs): if agricultural entrepreneurs find government

regulations to be generally confusing, they find the procedures for EIAs to be especially so.

Given the limited list of service providers authorized by the government to perform EIAs,

agribusinesses feel that they have little control over the cost or the content of these assessments.

One company reported that, in its initial conversations with one such service provider, it was

provided with a quotation in the amount of US $ 90,000 for the assessment. Given that this

amount was several times greater than projected gross revenues for the company’s first year of

operation, it protested, at which point the service provider immediately dropped the price by 50%.

The company indicates that negotiations toward a further reduction are still underway. There

needs to be a clearer, more transparent understanding of the parameters of the assessments within

each sector, and a published set of uniform tariffs for each element of the assessment which

would apply to all authorized service providers.

g. Corridor do Desenvolvimento do Norte (CDN) vs. Direct-to-Terminal delivery: as with several of

the issues which have already been discussed above, the idea of establishing a dry port away from

the hustle and bustle of terminal operations, where security can be assured and where government

inspections can be performed safely and without undue haste, is a good one. Unfortunately this

good idea has generated considerable resentment within the shipper community on account of the

increased export costs which have resulted from the introduction of this system. An analysis

conducted by one LOI company showed an increase in clearing expenses for containers of 58%,

up from Mts 45,969 on the basis of a direct delivery to the port, to Mts 72,409 if the same

container transits through the dry port. At this point it is unclear whether this incremental cost is

indeed necessary, or if it simply reflects reluctance on the part of the port authority to discontinue

its customary charges for services now being performed at the dry port. In any event, an inquiry

should be made into the relative cost impact of this new system both at the dry port and at the

terminal, followed by measures to reduce or eliminate this cost increase.

In surveys of agribusiness companies which asked how important a role in aggregate these other

constraints in Mozambique played in discouraging new or additional investment, 25% of respondents

indicated one or more of these constraints constituted the principal factor in a negative investment

decision. Within the context of the LOI companies, this represents a negative decision on $115 million of

potential investments, equivalent to the loss of 5,750 new jobs and lost sales opportunities for 2.1 million

smallholders.

H. Recommendations


24

The recommendations listed here are designed to enhance the efficiency and cost-competitiveness of

businesses in Mozambique. Some of these recommendations are new to this report. Others have been

taken from previous compilations on the subject of constraints to investment in Mozambique, particularly

in reports from the Grow Africa/New Alliance, where they have been raised repeatedly over the past three

years without achieving resolution.

Issue Area Problem Recommendation

A. Finance A.1. Little, if any, government

support for investors who are

seeking local or overseas

partners interested in investing

in Mozambican agribusiness

A.1.a:Upgrade the capacity of CPI

and/or CEPAGRI to seek out

interested agribusiness investors

both inside and outside of

Mozambique, modeled along the

lines of Senegal’s APIX and other

successful FDI-development

agencies in Africa

A.2. Very limited access to

working capital financing

within the Mozambican

agricultural economy

A.2.a: Modify banking regulations

to permit the establishment of

private credit-ranking agencies

A.2.b: Enact mobile finance

regulations that would be risk-based

and allow for experimentation and

innovation

A.2.c: Encourage donors to

undertake projects to improve

access to finance for agricultural

smallholders and agribusinesses,

based on best practices developed

elsewhere in the developing world

B. Land B.1. Slow/indefinite processing

time and costs to obtain DUAT

B.1.a: Establish clear timelines for

each of the 9 steps of the land

acquisition process, together with an

incentive system to encourage

compliance with time limits


25

B.1.b: Establish

parameters/guidelines for the costs

associated with each of the steps

along the course of the process

C. Tax C.1. Agribusinesses cannot

regularize purchases from

informal producers for VAT

purposes without payment of

prohibitive Taxa Liberatoria

C. 1.a: Develop and approve

invoices that can be issued by

purchasing firms on behalf of

suppliers that are not registered

taxpayers.

C.1.b: Develop and approve

monitoring and control procedures

to discourage fraudulent practices

stemming from the direct issuance

of invoices by agribusinesses

C.1.c: Implement fiscal education

for smallholders, including

materials in support of smallholder

formalization

C.2.Businesses must wait until

the government is in a position

to refund their VAT payments

on exempt goods. Delays are

often denominated in terms of

years.

C.2.a: Establish a protected account

for VAT obligations, with pre-

determined timelines for refunds

and penalties in the event the

Revenue Authority is unable to

comply with these timelines

C.3. Tax holidays for new

agribusiness investments are

limited to five years, counted

from the date the investment

proposal is delivered to the CPI,

while companies are often

unable to operationalize their

investments until years later

C.3.a: Begin counting the five-year

tax holiday period from the time the

investment proposal is approved or

the issuance of the provisional

DUAT, whichever is later

D. Regulatory D.1.Entrepreneurs spend

considerable amounts of time

and money dealing with

compliance issues.

D.1.a: Review the body of federal,

provincial and local regulations

governing businesses, with the goal

of reducing the number and cost of


26

all such regulations

D.1.b: Harmonize the language and

enforcement of all remaining

regulations across federal,

provincial and local agencies, so as

to eliminate contradictory

interpretations and enforcement

measures

D.1.c: Establish an Office of

Agribusiness Investment

Facilitation, to serve as a focal point

for all investor questions regarding

laws and regulations, to ensure

uniform interpretation and

application of these laws and

regulations nation-wide, and to

enforce procedural timelines for all

initial or operational processes. This

office must have authority to engage

with all levels of public

administration on behalf of

agribusiness investors in order to

resolve disputes or differences of

interpretation

E. Macroeconomic E.1 The unexpected volatility in

the value of the Mts is acting as

a disincentive to foreign

agribusiness investment

E.1.a: Underline the government’s

goal to achieve a stable Mts as

quickly as possible, and adopt the

necessary policies to attain this goal

E.2. Suspension of aid payments

to Mozambique by the IMF, the

World Bank and other donors

have undermined investor

confidence in the Mozambican

economy

E.2.a: Engage in negotiations with

these donors pursuant to defining

the terms for a resumption of

budgetary support programs

F. Security ?F. 1. Economic disruption in

the agriculture, transportation

and tourism sectors over the

past 18 months has been acute,

F.1.a: Order needs to be restored,

particularly across the central

portion of the country. The

government and the opposition must


27

and the risk of disinvestment is

high

find a pathway to restoring safe

transit of goods and people between

the Save and the Zambezi, and

allowing displaced persons in the

combat areas to return to their

homes and farms.

G. Other-Guia G.1. Permit (guia) regulations

for transit of agricultural

products across provincial lines

are confusing, inconsistent, and

serve as an impediment to

agricultural commerce

G.1.a: Eliminate permit (guia)

requirements for all inter-provincial

trade in agricultural commodities

G. Other-Seeds G.2. Government and donors

continue to donate unimproved

seed to subsistence farmers,

undermining private sector seed

companies and agricultural

productivity

G.2.a: Tighten implementation of

regulations to circumscribe

exemptions to free distribution of

unimproved seeds

G.2.b: In cases where free

distribution of seeds is warranted

under existing regulations,

encourage distribution of improved

hybrid material

G. Other-Kudumba G.3. Screening of cargo in ports

by the Kudumba equipment has

produced delays in container

deliveries and vessel departures

G.3.a: Kudumba ownership/

management should be held

financially accountable for

equipment breakdowns, operator

errors and insufficient staffing

G. Other-Ocean

Shipping

G.4. Sailing frequencies from

Mozambique are much less than

from the Port of Durban,

leading to irregular deliveries of

finished products to markets,

extended pre-shipment storage

periods for finished goods, and

expensive bonding requirements

for shipment via Durban

G.4.a:Work with containership

operators to identify the factors

which would permit increased port

calls to Maputo, Beira and Nacala


28

G.4.b: Negotiate with the

Government of South Africa to

reduce bonding requirements for

Mozambican cargo transiting

overland to Durban

G.4.c: Develop bonding systems for

in-bond shipments to Durban which

are more accessible and less

expensive

G. Other-Grower

Organization

G.5. Smallholder fragmentation

undermines the ability of

agribusinesses to deal with them

directly, thereby reducing value

chain efficiencies

G.5.a: Ministry of Agriculture and

agribusinesses should work together

to develop models of smallholder

aggregation which are appropriate

to the Mozambican environment,

and which permit smallholders to

integrate more fully into their value

chains

G. Other-

Environmental

Impact Assessments

G.6. Regulations governing

EIAs are opaque and confusing,

and costs are unpredictable

G.6.a: Define the parameters for

EIAs for each agricultural sub-

sector. Establish and enforce

uniform tariffs for all elements of

these assessments, for use by all

service providers

G. Other-CDN

system

G.7. Introduction of off-port

container yards has increased

overall clearing expenses to

exporters by as much as 58%

G.7.a: Rationalize services and

charges by port authorities and dry-

port operators to eliminate

duplication and to bring aggregate

clearing costs back to their original

levels


29

Appendix I: Mozambique Rank, Enabling the Business of Agriculture, 2016

Source: The World Bank “Enabling the Business of Agriculture Report-2016”


30


31

Appendix II: Ease of Doing Business Rankings

Source: The World Bank “Doing Business Report-2016”


32

Appendix III: Mozambique’s Ease of Doing Business Ranks by Category



33

Appendix IV: Time and Costs of Starting a Business in Mozambique


No. Procedure Time to

Complete Associated Costs

1

Obtain certification of uniqueness name (certidão de reserva de

nome) at the Conservatória do Registo das Entidades Legais (Legal

Entities Registrar)

Agency: Legal Entities Registrar of Maputo

The Registrar Office of Maputo was computerized and name

verification can be done in a day.

1 day MZN 75

2

Sign the contract before the notary

Agency: Balcão de Atendimento Único

According to Article 90 of Commercial Code, the Articles of

Association is issued by written document signed by all partners

before a notary. This can be done at the notary, the one-stop-shop

and the public registry (Conservatoria do Registo das Entidades

Legais)

1 day no charge

3

Open a provisional bank account and pay registration fees

Agency: Bank

The purpose of the bank account is to deposit the share capital

therein. Also, the entrepreneur can make a payment for the

registration fees and the official gazette fees.

1 day no charge

4

Register with the Legal Entities Registrar of Maputo

(Conservatória do Registo das Entidades Legais); request a

commercial registry certificate; publish company statutes in the

official gazette (Bolhetim da República)


To register a company with the Commercial Registrar Office of

Maputo, the following costs apply:

- The registration fees vary according to share capital: amounts up

to MZN 5 million are taxable at a .2% rate, and amounts over

MZN 5 million are taxable at a .1% rate.

This registration is completed, as the Commercial Registrar

coordinates the publication of the company statutes in the Official

Gazette. The fixed fee for publication of the articles of association

is MZN 900 per 25 page- line (MZN 36 per line). Publication can

take 3 days to 1 week.

3 days to 1

week

see procedure

details

5

Register for taxes and obtain NUIT from Repartição de Finanças

Agency: Repartição de Finanças

The company needs to register at the tax department (Repartição

de Finanças).

between 2 to 5

days no charge


34

6

Apply for a simplified operating license at the One-Stop-Shop of

Maputo


On February 2, 2012, the Council of Ministers approved the

revised Simplified Licensing Regime (Decree 5/2012) that served

to simplify even further the licensing of economic activities in

Mozambique. As a result a larger number of MSMEs benefit from

easier and less costly business startup procedures.

In the places, where the one-stop- Balcão de Atendimento Ùnico

(BAUs) is not available, the simplified license can be issued at the

Municipality or District Administration offices. The steps for

obtaining a license are:

i) Filling in the license application form;

ii) Attach the following documents:

ii) A copy of a valid Identification Document or Passport or

Driving License or Professional Registration Card or Voter

Registration Card (for Mozambican citizens). A copy of the DIRE

or temporary residence permit, with a validity of at least 6 months

(for foreign citizens);

iv) A legal entity registration certificate or copy of the publication

of the articles of association in the Government Gazette (Boletim

da República) and proof of the quality of the applicant, for legal

persons;

v) Copy of the proof of issuance of the NUIT (Unique Tax

Identification Number).

vi) Information and document review by the relevant authority. If

all is correct, the fee is paid and the license is issued. The current

license cost is 50% of the minimum wage for the public sector,

which is updated every April and effective from June onwards.

Business activities in 9 economic sectors (agriculture, commerce,

industry, civil construction, communications, culture, fishing,

services and tourism) can benefit from the Simplified Licensing

regime. These are fully listed in Decree 5/2012.

1 day MZN 1,501

7

Declare the beginning of activity at the tax department (Repartição

de Finanças)

Agency: Repartição de Finanças

After the tax reform, a new income tax system has replaced the

old. Form "Modelo M/01" must be filed to register, under a

different taxpayer number, for income tax withholding (imposto

sobre o rendimento do trabalho), secção A, and Form 44 is used to

register for complementary tax. Since 2002, there is no Imposto

sobre Rendimento do Trabalho Secção A. This tax was replaced by

Corporate Income Tax ("Imposto sobre o Rendimento das Pessoas

Colectivas") and Personal Income Tax ("Imposto sobre o

Rendimento das Pessoas Singulares").

For VAT and corporate income tax, the notification of the

beginning of business activity must be submitted 15 days before

commencement. This notification must be submitted to the tax

department of the appropriate fiscal district the form Modelo 6. In

7 days no charge


35

addition, this process requires the filing of Modelo 5 (in triplicate)

and an authenticated copy of the operating license. The company is

assigned unique taxpayer number (número único de identificação

tributária) in 15 days, and an individual file for all taxes is opened.

* 8

Declare the beginning of activity and register job candidates at the

provincial employment center

Agency: Provincial Directorate of Labor

To register employees at the provincial employment center, the

employer must request work cards within 30 days of the start of

employment agreements, submit a schedule of work hours, and

declare the employment of national workers in 30 days of the start

of their respective employment agreement.

An employer with more than 10 employees must open a file

(processo individual) and prepare four copies of a specific form for

each worker, listing the name, position, skills, sex, date of birth,

identity card number, date of entry, date of last promotion, wage or

salary, and number of hours worked each month. These four copies

are presented to the Employment Center, which after stamping

them keeps three copies and returns one to the employer for public

posting. This chart must be updated and approved annually by the

Ministry of Labor. Together with this form, the employer must

submit the company’s annual holiday’s plan (plano de férias) and

each employee’s work card (MZN 5,000 each), which includes

identity information and the employee’s signature. Upon stamping,

the Employment Center returns them to the company, which

distributes them to each worker as an employee identification card.

between 1-2 days,

(simultaneous

with previous

procedure)

Each copy of the

chart costs 5

MZNs, assuming

10 workers

* 9

Register workers with the social security system


The employer must register the company within 15 days of the

start of business activity and register employees within 30 days of

the start of their employment agreements. A special form (boletim

de identificação de beneficiaries) must be filled out for each

employee and submitted to the Instituto Nacional de Segurança

Social within 15 days of signing the labor contract, accompanied

by an authenticated copy of that employee’s identity card, an

authenticated copy of the operational license, and the company’s

número único de identificação tributária (nuit). A special form

(ficha da empresa) must be filed for each company.

1 day,

(simultaneous

with previous

procedure )

no charge

* 10

Subscribe a workmen’s compensation insurance coverage

Agency: Insurance company

By Law, companies have to provide their workers with life

insurance for risks not covered by social security system. The

seguro colectivo is required by article 231 of the Decree 21, 2007

(Lei do Trabalho).

1 day,

(simultaneous

with previous

procedure )

no charge

* Takes place simultaneously with another procedure.


36

Appendix V: Summary of Findings – AgCLIR Mozambique

Source: AgCLIR MOZAMBIQUE: COMMERCIAL, LEGAL, And

INSTITUTIONAL REFORM IN MOZAMBIQUE’S AGRICULTURE SECTOR --

AGENDA FOR ACTION, AUGUST 2011

SUMMARY OF FINDINGS

Summaries of subject-matter areas examined in this diagnostic are set forth below.

Dealing with Licenses. A broad range of licensing and permitting authority sets the stage for

business activity in Mozambique, including in the agriculture sector. The prevailing ideology

underlying this authority has transformed dramatically in recent years – from a socialist and

centrally oriented economy, which significantly restricted options available to entrepreneurs, to

far greater orientation toward free market principles and local control. Within today’s legal

framework, there remains some duplication, overlap, and internal inconsistency that warrant

scrutiny and reform. Nonetheless, the formal licensing regime constrains the ability for

enterprises to flourish far less than the capacity and attitudes of public servants who are charged

with implementing licenses and otherwise facilitating business-oriented services. Namely,

regulatory authorities are not held especially accountable for their work. There is a widely

prevalent instinct to seek out donor resources rather than to internally drive low-cost reforms. For

example, most regulatory authorities do not adequately inform the public about the formally

established costs and required timeframes for service delivery. At a minimum, posted fees and

procedures in all public offices, particularly in the rural areas, could help private-sector actors

better understand – and demand – their rights.

In addition, given high levels of illiteracy, poor infrastructure, and unqualified workers in

Mozambique, it is difficult for the private sector, particularly smaller enterprises, to fully abide by

all licensing requirements. Accordingly, the public sector’s efforts should center on achieving the

underlying purpose of licensing rules – generally, the protection of public health and safety – as

opposed to inappropriate revenue-raising for government or simply penalizing enterprises that do

not yet understand the rules. For several years, government in Mozambique trended toward

becoming increasingly decentralized, and authority for decision-making and management of

funds derived from licensing became increasingly vested at the provincial and district levels.

However, the decentralization process has not rolled out at the same speed throughout the

country, and current commitment to decentralization appears to be wavering. As a practical

matter, licensing practices in certain provinces or districts often do not yet reflect existing

changes in legislation.

Employing Workers. Mozambique’s agricultural workers, most of whom work informally on

small family farms, are overwhelming unprepared to meet the demands of a modern, productive

agriculture sector. Even by regional standards, their productivity on the farm is low and there is a

sense across agricultural subsectors – from staple crops production, to light industry, to exports –


37

that “we cannot compete” with neighboring countries, including South Africa and Malawi.

Agricultural workers have not come close to realizing the opportunities presented through such

approaches to efficiency as farmer associations and formal cooperatives. Moreover, they feel

barely served by agricultural extension services, which are supposed to help bring updated

knowledge and awareness of production opportunities to their constituents. In addition,

employers attribute poor work habits in low-skill, wage-earning jobs to the scarcity of such jobs,

meaning that most laborers have not worked under formal conditions before. In the critical area of

knowledge-based services, the quality of specialized education in Mozambique is insufficient:

vocational schools and university faculties lack the laboratories and equipment they need to

properly train agricultural managers and professionals, and they have not yet exploited vast

opportunities to integrate the private sector into the training regime. The increasing demand for

higher education has resulted in a growth of private institutions – these vary in quality, but have

the potential to help meet the country’s need for training and education that meets and expands

available opportunities in the workforce.

In addition to critical skill shortages, employers complain about the labor and employment law

under which they do business. Efforts were made during the revision of the country’s Labor Law

in 2007 to allow greater flexibility in the conditions of work – including procedures for hiring and

firing employees – thus encouraging employers to take on more formal workers. However, most

employers continue to believe that the law’s “crippling redundancy requirements” and other

constraints discourage them from employing more workers. The law makes employment of

skilled foreign labor especially cumbersome and expensive and enables government bureaucrats

to substitute their judgment of who a company should hire for the company’s own views. As a

result, companies must significantly restrict the extent to which they benefit from the

contributions of foreign workers, ultimately missing opportunities to build local skills and explore

new opportunities in agriculture production. This fact contrasts with recent best practices in

similar low-skill environments, such as Rwanda, where foreign workers are not regarded as

competition to be avoided, but rather as critical resources for knowledge, skills, and development,

to be embraced.

Getting Credit. In Mozambique, less than 6% of total lending in 2010 was dedicated to

agriculture, down from around 10.5% in 2004. A limited group of so-called traditional products

(tea, sugar, cashew, sisal, coconut and cotton) are the main recipients of agriculture credit

(67.7%). Since 2004, only sugar and cashew show consistent growth in financing. In contrast, tea,

coconut, sisal, and, most recently, cotton have decreased. Recent years reveal a shift in

agricultural credit allocation: in 2004, the traditional products received 78.8% of total credit to

agriculture, a figure that diminished to 52.5% in 2010. Nontraditional products receive a growing

percentage of agriculture credit, specifically from 21.1% in 2004 to 47.4% in 2010. Formal data

is not available to specify precisely what other agriculture products are being financed, but

bananas, mangoes, citrus, macadamia nuts, Jatropha, and cereals reportedly are among them.

Thus, the primary recipients of agricultural finance in Mozambique are crops oriented for export,

with the good news in that regard being that the list of export crops is expanding. In real terms,

however, lending to all agriculture is scant and difficult to access. Especially underserved are

products that, with strengthened access to finance, could far more effectively respond to robust

domestic demand: these include eggs, chicken, meat, milk, and even fruit and vegetables that are

currently imported but, produced more efficiently, could serve Mozambique’s own markets and

even be primed for export. Access to finance for products serving domestic and export markets

alike, however, remains extraordinarily weak. Banks and other lending institutions continue to

regard the risks of lending to agriculture as too high: reasons for this include the inability to use

land (or land use rights) as collateral; the poorly protected legal rights in secured lending, as


38

evidenced by the lack of a single collateral registry; the virtual absence of crop insurance;

cumbersome and inefficient procedures for investigating credit histories; poor societal attitudes

toward lending, including bad habits reinforced by government lending schemes; and others. This

report recommends a variety of reforms in the area of getting credit. Among them, it suggests

revisiting USAID’s 2007 report on financial services and identifying where recommended

reforms have (or have not) been undertaken, and why; supporting the enactment of a modern

secured transactions law to provide quick, inexpensive, and simple creation of a proprietary

security right; establishment and building of the capacity of private credit bureaus; tackling

Mozambique’s interest-rate problem through concentrated efforts at risk reduction, increased

insurance opportunities, and changes in lender incentives; promoting mobile finance

interoperability; improving the enforcement of agricultural contracts; and enacting a new

bankruptcy law and taking steps toward its effective implementation. Moreover, unequivocally,

Mozambique should reinforce its commitment to property reform, as detailed in the Cross Cutting

Themes section of this Introduction.

Paying Taxes. Since 1998, all of Mozambique’s primary tax instruments have been substantially

transformed. As a result, tax revenues increased from 14% of GDP in 2005 to 16.6% by 2010.

Other achievements include the enactment of a new General Tax Law clarifying rules for tax

collection and taxpayer rights; rationalization of fiscal benefits, in particular ending the special

regime for large projects; a new Municipal Finance Act; reduction of the burden on small

business by increasing tax thresholds and enacting a Simplified Tax for Small Contributors

(ISPC); and a strengthened tax regime for the mining and petroleum sectors. Several additional

reforms are still underway. These include integrating tax and customs information systems; tax

collection via banks; improving audit revenues relative to total revenue; modernizing tax

administration; and implementing tax courts. Moreover, Mozambique’s national Strategy for the

Improvement of the Business Environment recognizes that the fiscal burden in the country is still

too high compared with other countries in the region. It also notes the perception that fiscal

legislation is not designed with SMEs in mind and that further work is necessary to accelerate the

reimbursement of VAT to businesses. The key challenges in the area of Paying Taxes include the

following: (1) the lack of public information and taxpayer services; that is, the code of fiscal

benefits approved under “Green Revolution” is still poorly disseminated; (2) excessive

complexity of the tax system, especially considering that many farmers are illiterate and lack

basic legal documents (interviewees were especially critical of the complexity of the income tax

and the VAT); and (3) the fact that agricultural inputs, such as seeds and agro-chemicals and

manual implements, are not classified under the retail commerce classes, which would diminish

their tax implications.

Accessing Marketing Infrastructure. With respect to the critical aspects of infrastructure for

marketing agricultural products – including storage facilities, roads, ports, and information

technology – Mozambique is a country rich in legislation. The quality and number of its laws and

regulations is perceived as generally sufficient; however, the country’s capacity to implement

them is remains insufficient. The public sector lacks financial, human, material and technological

capacity to address the increasing needs of farmers and producers and to otherwise respond to the

demands of the private sector. The highly visible impact of this poor implementation is that

Mozambique imports many of the products it could grow and market itself. Once agricultural

products leave the farm-gate, a variety of constraints unduly interfere with their ability to reach

markets that will afford them fair prices from a variety of buyers. First, the deficient state of

classified and unclassified roads cripples interprovincial, rural-urban and regional trade. Second,

Mozambique’s ports need to be more efficient and effective, such as providing cold storage and

moving goods through faster, to attract more business and become more competitive. Third,


39

implementing institutions, including the Ministry of Agriculture, the Ministry of Industry and

Commerce, the Mozambique Cereals Institute, and others, lack necessary stewardship and

influence to meet their mandates. Fourth, private-sector business organizations do not yet

effectively lobby before government. They need a stronger voice to negotiate pro-market

development policies. Finally, Mozambique needs to more effectively leverage its resources in

agriculture technology and inputs for the purpose of strengthening its farm productivity and

product quality, so that the country’s goods will be more attractive in the domestic, regional, and

international markets.

Trading across Borders. Mozambique has worked to institute a program of trade reforms since

the early 1990s. As a result, it has one of the most open trade regimes in Africa. The country has

five tariff bands (0, 2.5, 5, 7.5, and 20%) with the highest rate applied to basic food products such

as meat, fish, fruits, vegetables, beverages, and clothing. In addition, goods and services may be

subject to: (1) a value added tax (VAT) at 17% of Cost, Insurance, and Freight (CIF) value; (2) an

excise tax (specific consumption tax), levied on tobacco products, alcoholic beverages, and

luxury products; and (3) a surtax, levied on “sensitive” products, including sugar, cement, and

certain steel products. In direct support of its emerging cashew processing industry, Mozambique

applies an export tax of 18% on raw cashews, and, in 2010, Mozambique levied a 20% tax on the

export of logs or stakes, with slightly lower rates levied on processed wood. In general, the

agricultural sector remains more protected than the non-agricultural sector. Despite the recent

improvements of many laws, institutions, personnel, and infrastructure resources in Mozambique,

traders of agricultural products continue to experience delays, administrative burdens, and

corruption, thus elevating the transactions costs of regional and international trade. The greatest

constraints to Mozambique’s exports to regional markets, in particular to South Africa, concern

the lack of trade integration – that is, the continued assessment of duties on sensitive food

products, the lack of harmonization of transport regulations, non-tariff barriers (including

differences over certificates of origin), and sanitary and phytosanitary (SPS) issues. More can and

should be done to increase the effectiveness of trade institutions, integrate border-crossing

procedures, improve risk management, streamline customs clearance processes, improve

technology utilization, curb corruption, and address the infrastructure needs for agricultural

products moving through Mozambique’s ports, airports, and trade corridors.

Enforcing Contracts. Although Mozambique has relatively sound legislation for the

enforcement of contracts, various economic and socio-cultural issues sharply limit the use of

formal, written contracts in the agriculture sector. Typically, only large companies and banks

fully integrate formal contracts into their business relationships. In contrast, most Mozambicans

involved in agribusiness rely on informal, verbal contracts. Within “contract farming”

relationships, some large companies supply small producers with inputs, in exchange for the

promise to sell their produce – mostly for export – to the company. Even in these relationships,

however, smallholders tend to regard such arrangements as merely guidelines for business

relationships, rather than strict commitments on which enterprises can make plans for the future.

A lack of flexibility in such contracting arrangements may aggravate the problem of “side-

selling” – that is, contracts that are viewed as exploitative are less likely to sustain full faith and

compliance. In recent years, Mozambique has created commercial sections in courts for the

purpose of streamlining cases involving the flow of commerce. Currently, the functioning

sections are in the Maputo City Judiciary Court (two sections) and the Sofala Provincial Judiciary

Court (one section). These resources for resolving commercial disputes supplement services are

provided by the Center for Arbitrage, Conciliation and Mediation (CACM), as well as the

Commission for Labor Mediation and Arbitrage, two services that appear to reinforce general

compliance with commercial contracts. In the meantime, primary-level courts lack sufficient


40

resources, streamlined practices, and public confidence. Informal negotiation between the

concerned parties is the most common and preferred means of dispute resolution. There is a

scarcity of legal services oriented toward agriculture in Mozambique’s rural communities,

including a shortage of lawyers and an absence of practical guidance on the formation and

enforcement of agricultural contracts. In addition, there is little academic coordination between

agriculture and the law, despite the substantial role that agriculture plays in Mozambique’s

economy. Opportunities abound for increased coordination, through strengthened training of

lawyers in agricultural topics; increased academic discourse on the nexus between agriculture and

the law; and public outreach to farmers and their associations about the importance of building a

culture of contracts.

Closing a Business. Despite the need for a clear legal framework governing the winding up or

reorganization of insolvent companies, Mozambique does not have a specific law for bankruptcy

at this time. The legal and regulatory framework on bankruptcy improved in 2005 with the

revision and adoption of two main legal instruments, Law No. 1/2005, December 27th and Law

No. 9/2005, December 23rd, which introduced amendments to the Code of Civil Procedure. In

addition, Law No.2/2005, December 27th and Law No. 10/2005 December 23rd adopted the

Commercial Code and introduced additional changes to the regulatory framework around

bankruptcies. In recent years, the growth of Mozambique’s private sector, coupled with increased

socio-economic dynamism, reinforced the need for an independent bankruptcy law to respond to

the needs dictated by integration into regional markets. Significantly modeled on Brazil’s 2005

insolvency law, a draft law was created in 2007, with contributions enlisted from the local private

sector. A June 2011 paper by the USAID/SPEED project, “Review of 2009 Draft Law on

Business Insolvency (Mozambique) , details the key contents of the law and expectations for its

enactment; according to the paper, the draft law will likely be submitted to Parliament in Fall

2011. “While the choice of Brazilian law as a model is appropriate,” the paper contends, “the

draft may need further revisions to address the Mozambican context, so more research and

stakeholder impact is needed.” Moreover, if and when the new law is enacted; there will be

considerable need for outreach to the private sector, the financial sector, and the public at large,

as well as considerable capacity-building among Mozambican judges, insolvency administrators,

and supporting professionals such as lawyers, accountants, and business managers.


41

Appendix VI: “What are the Main Constraints You Have Faced?”

Source: Selected responses to the Grow Africa/New Alliance Survey in Mozambique, 2016

1. Financing/relationship banks

2. Severe drought/conclusion of social investments in the community/community relations

3. We have completed our intended investment successfully

4. Shortage of input products

5. Lack of trucks, motorcycles and capital

6. Accessibility to market due to lack of infrastructure. No official grading standard for

grains in the market. Lack of level playing field in the market. Lack of infrastructure pre-

/post-harvest. Government restrictions on currency. Limitations on ability to bring in

foreign currency or to convert into foreign currency for offshore obligations

7. Market relatively small, large geographical spread leads to high cost of doing business,

poor infrastructure, civil/rebel unrest a business disruptor

8. As a private company I have funded the whole project to date, which puts big pressure on

the cash flows. Finding funding or grants to help fund the education part of the program

would make a big difference and speed up everything

9. The political situation in Mozambique has put off a lot of investments. We had a lot of

investors who were interested but we had to put everything on hold. Devaluation of the

local currency wiped out all profits made in 2015

10. Time taken to get licenses and permits

11. Slow process of DUAT applications/approvals

12. Shortage of basic (foundation) seed for multiplication

13. Climate change problems – about 75% of farmers have lost their crops due to drought.

Most of the farmers will fail to pay back their loans. There is a risk of more jobs getting

lost. The companies will not have enough seats to sell next season

14. Lack of financing/excess bureaucracy/having only one client makes us very dependent. A

second client is high on the priority list

15. Marketing of produce. Since we have invested in the maize mill we have struggled with

establishing a reliable market

16. Very slow sales in the beginning of the year; this increased in the third quarter.

Procurement of maize and repayment of credit from farmers due to poor weather

conditions. Semi-precious stone deposit was found in the area. Growers left their fields

17. Negotiation on the details, price and structure of the land acquisition process


42

18. Price of commodity is low and market does not have the margin for increasing prices, so

the company has to face increased costs (especially due to devaluation and higher taxes)

19. Natural calamities in the northern region have hampered the movement of goods and

services

20. Rains, poor infrastructure, procedural delays, lack of skilled manpower. We could not

start the project on cassava due to the lack of a favorable enabling environment

21. Very low investment in agriculture sector

22. Weather conditions

23. Chemical residue problems. If this continues in Africa, we may have to discontinue our

sesame business, which would lead to unemployment and lost income sources for farmers

24. No investment received through any channel, but the constraints we face are related to

access to markets and lack of, or inadequate, physical infrastructure support

25. Access to market and funding. Poor physical infrastructure. Natural catastrophes/drought.

Political instability

26. Expensive and unreliable logistical chains

27. Inconsistent application of EIA and relocation requirements from the authorities.

Extremely long lead times for approvals from government departments even when these

departments have set reporting periods. Lack of educated and competent Mozambique

management staff

28. International remittance issue: we have faced some difficulties related to international

remittance for our project number such as loan registration at Central Bank of

Mozambique. The process has been complicated and time-consuming

29. Production of Jatropha seeds is still small-scale due to environmental factors. Production

of local rice was very low due to a lack of rain last year. Low consumption of bio diesel

for local communities due to a lack of production

30. Lack of working capital

31. In dire need of working capital. Obtaining all government approvals is a lengthy process.

Navigating bureaucracy

32. Lack of confidence on land and squatter issues

33. Lack of scale/market development. Processing throughput is driven by quality variation

in cassava cake. Expanding sourcing regions and associated access to farmers and

logistics infrastructure. Development/multiplication of planting material

34. Working capital is keeping us from launching full-scale and taking advantage of the

incredible opportunity in front of us

35. Working capital finance. We have increasing sales but not the funding to meet the sales

requests. Cumbersome laws in place regarding financing. Restrictions on movements of

funds in and out of the country

36. In order for us to do business we need support aggregating individual farmers and

working at farm gate. There are still hardly any entities who can do that. The technology

and the weight to provide this type of protection is in place

37. We had difficulty in securing partnership with European Community for development of

satellite-based information dissemination system. Hence the project could not be rolled

out

38. Costs of bank financing


43

39. We are new to the country and we are still learning about the complex regulatory

framework in Mozambique

Appendix VII: Bibliography

Strategic Plan for Agricultural Development, PEDSA 2010-2019 (Ministry of Agriculture,

October 2010)

National Agriculture Investment Plan, PNISA 2013-2017 (Ministry of Agriculture, June 2015)

AgCLIR Mozambique (USAID, August 2011)

Doing Business 2016 (World Bank Group)

Enabling the Business of Agriculture 2016 (World Bank Group)

Taxation in the Agricultural Sector in Mozambique (USAID, June 2012)

“Grow Africa: Partnering to Achieve African Agriculture Transformation” (WEF, January 2016)

Documents

Costs of Compliance: Constraints to Investment in Mozambique · Principal Constraints to Investment in Mozambique ... He thanks Shaun Cawood of BAWG and Alekhine Veloso of Grow Africa