Mozambique is at a crossroads. 2020 was set to see unprecedented growth, and whilst growth edged up in the first quarter, momentum has been subdued drastically as the full impact of COVID-19 unfolds. As of 29thJuly, Mozambique has 1,720 confirmed cases of Coronavirus and 11 recorded deaths. On 29thJune, the government announced a continuation of the State of Emergency until 29thJuly (today).
It is estimated that around 25,000 people’s jobs have been suspended by private companies. Bank leaders warn of further effects the pandemic will have on Mozambican businesses; the extractive industries have already taken a hard hit.
Yet despite the country facing some of its biggest challenges of recent times, there is optimism. Mozambique has become the poster child for the African economic growth story as the Liquefied natural gas (LNG)project, one of the continent’s biggest financing projects, is set to be a game-changer, not just for Mozambique but the region as a whole.
Last week, Afriwise heard from our in-country legal experts who shared their views on Mozambique; discussions focused on the current business environment and what the next 12 months may have in store for organisations operating in the country…
Investing in Mozambique: some considerations
COVID-19 is inevitably affecting a country that is heavily reliant on export and import activities and foreign investment.
According to Tiago Arouca Mendes a lawyer at HRA Advogados one of Afriwise’s contributing firms in Mozambique, the government has been moving swiftly, and seemingly efficiently to implement some well-received tax measures. These have included tax relief, namely the exemption of payment of income tax for companies with revenue up to MZN 2.5 million in 2019 and postponement to 2021 of payment of corporate income tax for companies with higher revenue. VAT has also been set off with any credits due by the Tax Authorities until 31 December 2020. The Mozambican government has also allowed for a MZN1 billion loan facility for small and medium companies.
These measures to help mitigate the economic impact of COVID-19 can be seen as part of a broader trend by the government to enhance the country’s business environment. Mozambique currently ranks 138 out of 190 measured countries on the World Bank’s Ease of Doing Business index. According to Tiago, measures to improve this ranking have included the approval this year of the centralisation of processes to incorporate a company in Mozambique under the Plano de Acção para a Melhoria do Ambiente de Negócios 2019-2021. A company now needs to interact with just one entity and it is now a 4 step process to incorporate a company rather than the previous 11 steps.
This move represents a major step forward for the business environment in Mozambique. It has been accompanied by other recent changes, including the flexibilization of foreign exchange procedures in 2019 and the creation of a Competition Authority that is expected to be operational some time in 2020.
Employment and Labour Relations in Mozambique
The main law governing Mozambican employment is the Labour Law, which applies to both foreign and national employees. Generally, Mozambique's labour laws are considered to be very employee-friendly.
Josina Correia an employment and labour legal expert in Mozambique explains that foreign investors interested in the LNG project should familiarise themselves with Mozambique’s Decree Law. In terms of labour, this provides substantial legislation on the labour relations relevant to the projects, which are applicable to not only operators but also contractors and sub-contractors. The decree law essentially allows the Mozambican government, concessionaires and Special Purpose Vehicles (SPVs) to agree on the number of foreign workers required for each project on a case by-case basis, avoiding the quota regime that normally applies under Mozambican law.
During COVID-19 employers have heavily relied on the ability to make changes to contracts. In particular, the force majeure clause has been triggered in order to reduce employee’s wages until the end of the state of emergency. Whilst no complaints have been heard of to date, it is believed that they could proliferate when courts re-open.
In terms of broader impacts of COVID-19 on employment and labour, it is widely anticipated that there will be changes to regulations, employment contracts and outsourcing contracts. There is likely to be an increased number of post state of emergency labour related lawsuits as courts begin to re-open. Companies should also expect to see an increased number of inspection procedures implemented.
Opportunities for projects in Mozambique
There is undoubtedly considerable opportunity for investment in Mozambique’s energy sector. The government has committed to increase access to energy by 64% by 2024. This was recently outlined in a five-year government programme which pledges to increase contribution from renewable energies, promote projects for the construction of energy infrastructures, expand the national grid and promote rural electrification through solar systems. Ultimately, the Government of Mozambique aims to increase the availability of energy by 600MW.
Taciana Peão Lopes a Mozambican energy/oil and gas lawyer and Managing Partner of TPLA, believes the government’s drive for sustainable, inclusive and climate focused development could provide significant investment opportunities over the coming years.
According to Taciana, local content requirements is a big question for the LNG project in particular. Whilst there is a local content law in discussion; it has not yet been approved. The local content requirements at present include preference to local products/services, except when the price is higher than 10% and foreign entities providing services to petroleum operations are required to “associate” with Mozambican entities. However, no clarification has been provided for what “associate” means.
As well as exploration and development phases of the LNG project, there will also be significant supply chain opportunities which Mozambican and South African companies will be well placed to provide.
There are registration portals for Area 1 and Area 4 where companies can register to access information on opportunities and procurement. For Small and medium-sized enterprises (SMEs) there are also initiatives linked to the project providing information on the main opportunities for supply of services and good.
Currently, the rate of electrification in Mozambique is around 28%. This means a large proportion of the population still do not have access to energy.
As it stands the licensing of power projects is extremely expensive and complicated. In addition to specific sector legislation there are all other licenses including labour licenses, land rights and environmental processes, making it unsurprising that processes can take up to 3 years. The current regime is believed to be non-conducive to the development of renewable projects, even less so for off-grid projects.
The government is currently reviewing the electricity law with the key purpose to make processes more efficient and simpler. This includes an energy cadastre that will give public and transparent information about all projects that are taking place in the country.
Ahead of Afriwise’s launch into Mozambique in August Afriwise hosted a Mozambique webinar on 24th July.
To hear more about our guidance for businesses in Mozambique during this period please listen to the full webinar here.
These legal and regulatory insights have been provided by Afriwise's top Mozambican legal partners and experts, including: Tara O’Connor - Africa Risk Consulting, Tiago Arouca Mendes & Paula Duarte Rocha - HRA Advogados, Josina Correia - Josina Correia Advogados and Taciana Peao Lopes - Taciana Peão Lopes & Advogados Associados.
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