trade policy review report by the secretariat mozambique

RESTRICTED WORLD TRADE

ORGANIZATION WT/TPR/S/209 1 December 2008

(08-5800)

Trade Policy Review Body

TRADE POLICY REVIEW

Report by the Secretariat

MOZAMBIQUE

This report, prepared for the second Trade Policy Review of Mozambique, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Mozambique on its trade policies and practices. Any technical questions arising from this report may be addressed to Mrs. Eugenia Lizano (tel: 022 739 6578). Document WT/TPR/G/209 contains the policy statement submitted by Mozambique.

Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Mozambique.

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CONTENTS Page

SUMMARY OBSERVATIONS vii (1) ECONOMIC ENVIRONMENT vii

(2) TRADE AND INVESTMENT REGIMES viii

(3) TRADE POLICY INSTRUMENTS viii

(4) TRADE POLICIES BY SECTOR ix

(5) TRADE POLICY AND TRADING PARTNERS x

I. ECONOMIC ENVIRONMENT 1

(1) MAIN FEATURES OF THE ECONOMY 1

(2) RECENT ECONOMIC DEVELOPMENTS 4

(3) TRADE AND INVESTMENT 6 (i) Trade in goods and services 6 (ii) Foreign direct investment 10

(4) OUTLOOK 10

II. TRADE AND INVESTMENT REGIMES 11

(1) GENERAL FRAMEWORK 11

(2) POLICY OBJECTIVES 13

(3) TRADE AGREEMENTS AND ARRANGEMENTS 15 (i) WTO 15 (ii) Regional trade agreements 16

(4) INVESTMENT REGIME 20 (i) Overview 20 (ii) Institutional and legal framework 20 (iii) Investment incentives 22 (iv) Bilateral agreements on investment promotion and protection 24

ANNEX II.1: TRADE-RELATED TECHNICAL ASSISTANCE 25

III. TRADE POLICIES AND PRACTICES BY MEASURE 28

(1) INTRODUCTION 28

(2) MEASURES DIRECTLY AFFECTING IMPORTS 29 (i) Registration 29 (ii) Customs procedures, and valuation 29 (iii) Rules of origin 31 (iv) Customs duties 31 (v) Prohibitions, quantitative restrictions, and licences 38 (vi) Standardization, accreditation, and certification 39 (vii) Sanitary and phytosanitary (SPS) measures 39 (viii) Packaging, marking, and labelling 40 (ix) Contingency measures 40 (x) Other measures 40

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Page

(3) MEASURES DIRECTLY AFFECTING EXPORTS 40 (i) Registration 40 (ii) Customs procedures 41 (iii) Export duties and taxes 41 (iv) Prohibitions, quantitative restrictions, and licences 41 (v) Export subsidies, assistance, and promotion 41 (vi) Industrial Free Zone (IFZ) regime 42

(4) MEASURES AFFECTING PRODUCTION AND TRADE 43 (i) Incentives 43 (ii) Competition and price controls 43 (iii) State trading, state-owned enterprises, and privatization 44 (iv) Government procurement 45 (v) Protection of intellectual property rights (IPRs) 46

IV. TRADE POLICIES AND PRACTICES BY SECTOR 49

(1) INTRODUCTION 49

(2) AGRICULTURE AND RELATED ACTIVITIES 50 (i) Overview 50 (ii) Agricultural policy 51 (iii) Policy by subsector 53 (iv) Fisheries and aquaculture 56 (v) Forestry 58

(3) MINING, ENERGY AND WATER 59 (i) Mining, petroleum, and natural gas 59 (ii) Electricity and water 63

(4) MANUFACTURING 64

(5) SERVICES 66 (i) Financial services 66 (ii) Telecommunications and postal services 69 (iii) Transport 71 (iv) Tourism 74

REFERENCES 77

APPENDIX TABLES 81

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CHARTS Page I. ECONOMIC ENVIRONMENT I.1 Structure of merchandise trade, 2001-07 8 I.2 Direction of merchandise trade, 2001-07 9 III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Breakdown of applied MFN tariff rates, 2008 33 III.2 Tariff escalation by ISIC 2-digit industry, 2008 35 IV. TRADE POLICIES AND PRACTICES BY SECTOR IV.1 Industrial production, with and without Mozal 2000-06 65

TABLES I. ECONOMIC ENVIRONMENT I.1 Selected macroeconomic indicators, 2001-08 1 I.2 Balance of payments, 2001-07 6 I.3 Foreign direct investment, 2003-07 10 II. TRADE AND INVESTMENT REGIMES II.1 Mozambique's principal trade-related laws and regulations, April 2008 12 II.2 Investment incentives 23 III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Itemized customs revenue from imports, 2001-07 32 III.2 Structure of MFN tariffs in Mozambique, 2008 33 III.3 Summary analysis of the MFN tariff, 2008 34 III.4 Regimes, procedures, and scope of application of the procurement regulations, 2008 46 III.5 Use of tendering procedures in contracts, 2007 46 IV. TRADE POLICIES AND PRACTICES BY SECTOR IV.1 Production of basic food crops, 2002-07 51 IV.2 Production of cash crops, 2002-06 51 IV.3 Sugar exports under preferential regimes, 2001-07 54 IV.4 Exports of fishery products, 2002-07 58 IV.5 Production of leading exported mining products, 2002-07 60 IV.6 Banking sector indicators, 2006 67 IV.7 Insurance market shares, 2004-07 69 IV.8 Telecommunications service indicators, 2001-07 69 IV.9 Port traffic, 2001-06 71 IV.10 Tourism indicators, 2002-07 74

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APPENDIX TABLES I. ECONOMIC ENVIRONMENT AI.1 Export structure, 2001-07 83 AI.2 Destination of exports, 2001-07 85 AI.3 Import structure, 2001-07 86 AI.4 Origin of imports, 2001-07 88 III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 Applied MFN tariff averages by HS2, 2008 89 IV. TRADE POLICIES AND PRACTICES BY SECTOR AIV.1 Applied MFN tariffs, by ISIC Rev.2 category, 2008 93

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SUMMARY OBSERVATIONS

(1) ECONOMIC ENVIRONMENT

1. The reforms pursued by Mozambique since its first Trade Policy Review in 2001 have contributed to high economic growth of 8.7% on average per year during 2001-07, driven mainly by megaprojects financed by foreign direct investment and public spending largely financed by foreign aid. Mozambique remains committed to pursuing prudent fiscal and monetary policies. It has made efforts to reduce its public deficit (after arrears clearance and on cash basis) from 6.17% of GDP in 2001 to 3.9% in 2007, through improved expenditure management and tax administration and collection. Since its 2006 reform, which introduced the New Metical as the national currency, the Bank of Mozambique has maintained a restrictive monetary policy, with "price stability" as the major goal since 2007. Nevertheless, the rising oil and cereal prices on international markets have adversely affected Mozambique’s attempt to keep inflation at around 6-6.5%; the Consumer Price Index (CPI) for the capital city of Maputo recorded an annual rate of increase of 10.26% in December 2007.

2. Despite continuous growth, Mozambique remains among the poorest least developed countries (LDCs), with GDP per capita of US$398.20 (at constant prices) in 2007. Mozambique's economic potential remains largely untapped, due mainly to supply-side constraints including poor access to and high costs of utilities, e.g. water, electricity, transport, telecommunication, and financial services. Furthermore, administrative hurdles have inhibited the business environment. The ongoing reforms are aimed at addressing these constraints. The functioning of the public sector and the business environment are to be improved with a view to enhancing the development of the private sector. The Government’s Action Plan for the Reduction of Absolute Poverty (PARPA II), adopted in 2006, is aimed at reducing the incidence of poverty from 54% in 2003 to 45% in 2009.

3. Services remain the leading sector of the economy (accounting for approximately 55% of GDP in 2007), followed by agriculture, including fisheries, livestock, and forestry (23%), and manufacturing (13%). The agriculture sector, however, employs about three quarters of the labour force, mostly engaged in subsistence farming on an informal basis. Hence agriculture plays a central role in achieving the poverty-reduction objectives set out in the PARPA II. Mozambique has considerable mining resources, which are not yet fully exploited. As a result, the contribution of the sector to GDP remains low, at 1.3% in 2007. Production in new mining projects is scheduled to start in the near future. Mozambique anticipates that FDI flows to megaprojects in the mining sector will continue to grow; a central government objective is to improve the management of natural resources and to increase the net contribution of these projects to the national economy.

4. Since the first TPR of Mozambique in 2001, trade has become more important to its economy. The ratio of trade in goods and non-factor services to GDP increased from 54.1% in 2001 to 64.4% in 2007. Production by megaprojects, which benefit from incentives under the Industrial Free Zone (IFZs) regime, has contributed to the sharp increase in exports (up by 230%) and imports (up by 180%) from 2001 to 2007. Mozambique's export structure has not changed since 2001; its major export is aluminium (almost two thirds of total exports in 2007) produced from imported alumina originating in Australia, and exported to the European Communities (EC), where it benefits from preferential access. Mozambique also exports electricity to South Africa, the leading export destination in the region. Exports of cashews, cotton, refined sugar, tobacco, and fishery products, though low in terms of relative contribution to the total value of exports, are significant in terms of their contribution to rural incomes. In addition to alumina, other major imports are oil (10% of imports in 2007), followed by food and chemicals. Imports originate mainly in

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Australia and South Africa. Mozambique is a net importer of services.

(2) TRADE AND INVESTMENT REGIMES

5. Mozambique’s Constitution was modified in 2004 to decentralize decision making powers and improve the functioning of the judicial system. Mozambique’s Assembly of the Republic adopts laws and ratifies treaties. The Council of Ministers formulates and implements public policies, and responsibility for trade and investment matters is vested in the Ministry of Industry and Commerce (MIC), assisted by inter-ministerial committees. Public/private sector dialogue is maintained primarily through the Confederation of Economic Associations (CTA), which has been active in improving the business and investment environment.

6. The Investment Code, already in force in 2001, is unchanged, but the investment regime has been improved by the adoption of a new Commercial Code, a consolidated Code of Fiscal Benefits (with mining and petroleum being regulated separately since 2007), and a new Labour Law providing for greater flexibility in the labour market. However, two major bureaucratic obstacles to investment remain in place: the comprehensive licensing system, and the inspection of premises. Despite these and other supply-side constraints, Mozambique has attracted substantial foreign direct investment inflows since its first TPR, partly due to tax incentives, under the IFZs regime. Incentives were curtailed in 2002 and are presently under review.

7. Mozambique is an original member of the WTO and grants at least MFN treatment to all its trading partners. It generally supports the positions of the LDCs, the African Group, the ACP countries, and the Group of 77 Developing Countries on issues related to multilateral obligations and technical assistance. Cotton and sugar subsidies, as well as food security, are of particular concern to it. Mozambique has made some progress on the implementation of WTO rules since its first TPR, notably with respect to customs

valuation and the protection of intellectual property rights. In contrast, notifications remain a persistent difficulty, and Mozambique’s participation in the multilateral trading system remains modest, despite the increasing importance of trade to its economy. Mozambique has benefited from a large number of WTO activities to support the development of its international trade, including the Integrated Framework and the Joint Integrated Technical Assistance Programme II, but further capacity-building is needed.

8. Mozambique is a member of the Southern African Development Community (SADC). Since its first TPR, Mozambique has concluded preferential trade agreements with Malawi and Zimbabwe to supersede former trade arrangements. At the end of 2007, Mozambique initialled an Interim Agreement with the EC to conclude an economic partnership agreement by the end of 2008 and replace the long-standing preferential access granted by the EC under the Cotonou Agreement. With the United States, Mozambique benefits from preferential access under the African Growth and Opportunity Act, signed a trade and investment framework agreement (TIFA) in 2005, and is negotiating a Millenium Challenge Account (MCA). Other WTO trading partners also offer Mozambique preferential access arrangements under their GSP schemes or other arrangements.

(3) TRADE POLICY INSTRUMENTS

9. During the period under review, Mozambique lowered its tariff in two instances. It reduced the maximum tariff from 30% to 25% in 2002, and from 25% to 20% in 2007. Its 2008 MFN applied tariff comprises rates of zero, 2.5%, 5%, 7.5%, and 20%; all tariffs continue to be ad valorem. As a result of the reductions, the simple average applied MFN tariff rate declined from 13.8% in 2001 to 10.1% in 2008. However, the tariff structure remains unchanged, with higher protection on agricultural products (13.5%) than on non-agricultural products (9.5%) (WTO definitions, excluding petroleum products). Reductions in the applied tariff

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rates have increased the gap between applied and bound rates. Under its Uruguay Round commitments, Mozambique bound tariffs on all agricultural products at a ceiling rate of 100%, while bindings on non-agricultural products are very limited; only 19 tariff lines at the 1996 HS eight-digit level were bound at either 5% or 15%. Extension of the scope of tariff binding on non-agricultural products would increase the predictability of the regime. "Other duties and charges" on all bound items were bound at 100%. Mozambique continues to apply surtaxes on sugar, cement, and galvanized steel products, also in place at the time of its first TPR. Mozambique levies a VAT of 17%, along with excise taxes; certain necessities are exempt from VAT as a poverty-relief measure.

10. In 2002, Mozambique implemented the WTO Customs Valuation Agreement. The requirements for pre-declaration and pre-payment of customs duties and taxes were eliminated in 2003. Pre-shipment inspection applies to a positive list of products, which is being narrowed, with fees assumed by the Government. The full operation of the Customs Service was returned to domestic control in 2005; the proper management of Customs however remains a challenge. Computerization is incipient. Under the foreign exchange regime, all operations, including imports and exports, require registration and authorization. The import and export licensing regime appears largely unchanged since 2001, with restrictions in place to protect consumers, animal and plant health, as well as the environment. Mozambique’s standards regime and its accreditation and certification procedures have not been modified since its first TPR in 2001. In general Mozambique uses international standards and adapts them only when it is necessary to suit domestic circumstances. Mozambique’s sanitary and phytosanitary regime has not been revised substantially since 2001. SPS measures on imports are based on international standards drawn up by the World Organization for Animal Health (OIE), the International Plant Protection Convention (IPPC), and the Codex Alimentarius. Certain

imported products (plants and plant products, and the products of apiculture) require a Phytosanitary Licence of Importation and are subject to inspection and control. Imports of animals and products of animal origin must obtain a Sanitary Licence of Importation. Export taxes are still used to encourage processing; for instance, exports of raw cashew nuts are subject to an 18% tax. Mozambique does not have legislation on contingency trade measures.

11. In 2007, Mozambique issued a general policy on competition, and a regulatory framework is to be adopted. The State remains a main economic operator; the supply of, inter alia, fixed-line telephony, electricity, and water, continues to be the preserve of state enterprises, contributing to Mozambique’s supply-side constraints. The new government procurement legislation, adopted in 2005, is aimed at improving the transparency of contracts and their award procedures, and should contribute to the improved use of public resources.

12. Since its first TPR, Mozambique has revised its regime on intellectual property protection and enacted new laws to bring it into closer conformity with WTO rules. Procedures to obtain intellectual property rights have been streamlined. Efforts to ensure respect for intellectual property rights, and in particular to combat piracy and counterfeiting, are continuing. In 2006, Mozambique introduced fines for the first time to deter infringement of industrial property rights (including through counterfeiting).

(4) TRADE POLICIES BY SECTOR

13. Agriculture is the major employer in Mozambique, absorbing some three quarters of the labour force, mostly engaged in subsistence farming on an informal basis. Productivity has remained low. Therefore, a key policy objective is to raise productivity in the sector, as this would contribute to poverty alleviation and food security. Agriculture has remained the most protected sector with an average tariff of 12.4%, compared with an overall MFN average of 10.1%.

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Mozambique's major agricultural exports include cashews, cotton, sugar, tobacco, and fishery and forestry products, and government intervention in these subsectors remains significant.

14. Manufacturing activities in Mozambique are limited, consisting either of import-competing agri-industries or export-oriented megaprojects. Foreign direct investment has been instrumental in the expansion of aluminium production, and the exploitation of mineral sands, coal, and natural gas, as well as electricity generation. Such investments have been fostered by tax incentives, as well as low (subsidized) electricity tariffs for aluminium production. Import-competing enterprises are protected from imports by relatively high tariffs as well as, in some instances, through VAT exemptions. In particular, the sugar companies operate under a guaranteed minimum domestic price system, enforced through a variable import surtax and distribution controls at the retail level. Mozambique also exports sugar under preferential quota access to the EC and U.S. markets.

15. Mozambique is a net oil importer. Downstream petroleum activities at retail level have been liberalized, but the importation of fuel products remains reserved to the state-owned enterprise IMOPETRO. Domestic fuel prices are regulated; they are adjusted on a monthly basis to account for world market price developments.

16. Further development of the services sector, with improved and efficient supply of services, is necessary for Mozambique to overcome some of its supply-side constraints. Banking services remain underdeveloped with substantial concentration, while insurance services have been somewhat liberalized. Tele-density has increased substantially as a result of the rapid penetration of mobile communication services, but access to Internet services remains low; privatization of the incumbent fixed-line operator, foreseen for some time, has been postponed indefinitely. Mozambique has developed a multimodal

transport infrastructure, through the rehabilitation of ports, roads, and railroads, allowing its integration with that of major trading partners, in particular South Africa and its land-locked neighbours, for which Mozambique's ports are an important gateway. The rehabilitation of infrastructure and transport services has been instrumental in developing Mozambique’s tourism. However, further development is required since inadequate and costly air transport services remain an impediment to growth of the tourism subsector. Mozambique made limited commitments under GATS; widening the scope of these commitments would support its efforts to overcome the existing bottlenecks and help attract national and foreign investment.

(5) TRADE POLICY AND TRADING PARTNERS

17. Since its 2001 Review, Mozambique has taken steps to liberalize its trade regime on a unilateral basis. It has, inter alia, lowered its maximum tariff rates, and improved its investment regime. Nonetheless, structural problems, including the high price and inefficient supply of utilities by state-owned companies operating under monopoly, as well as administrative hurdles, still inhibit the business environment and competitiveness. Therefore, continuation of the reforms remains necessary.

18. Mozambique is yet to meet its notification obligations. Its multilateral commitments on goods and services do not reflect its actual regimes. Therefore, continued reforms, improvement of multilateral commitments through extension of their scope, and reduction of bound rates, as well as efforts to meet notification requirements, would help to enhance the transparency and predictability of Mozambique's trade regime. Trading partners could help by ensuring that their markets are fully open to goods and services of interest to Mozambique, and by providing more technical assistance.

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I. ECONOMIC ENVIRONMENT

(1) MAIN FEATURES OF THE ECONOMY

1. Mozambique is situated on the south east coast of Africa, on the Indian Ocean. Mozambique shares common borders with Tanzania to the north, South Africa to the south, and (landlocked) Zimbabwe, Zambia and Malawi to the west, for which Mozambique acts as a transport gateway. In 2007, its population was around 20.4 million (Table I.1), and demographic growth was 2.4% per annum on average over the 2001-07 period. Along with several of its neighbours, and in particular with leading trade partner South Africa, Mozambique is a member of the Southern African Development Community (SADC), whose central objective is regional integration (Chapter II(3)(ii)), and Mozambique benefits from preferential access to the markets of the European Communities and the United States.

2. In 2007, Mozambique's GDP was estimated at around US$8.1 billion (excluding the contribution of the informal sector), and was estimated at US$9.7 billion in 2008. Per capita GDP was estimated at US$398 in 2007, about 50% higher than the level of 2001, which was US$231; income distribution remains a problem. (Table I.1). Mozambique has made an impressive economic recovery since the end of the civil war in 1992. However, as a least developed country (LDC) its human development index is relatively low; in 2005, Mozambique ranked 172nd (out of 177 countries) on the UNDP’s human development index.1 In 2007, life expectancy in Mozambique was about 42 years; the prevalence of HIV/AIDS among the population aged 15 to 49 was estimated at 16.2% in 20042, and HIV/AIDS was declared a national emergency in that year.

Table I.1 Selected macroeconomic indicators, 2001-08

2001 2002 2003 2004 2005 2006 2007 2008a

Miscellaneous

Population ('000) 17,653.0 18,078.0 18,514.0 18,962.0 19,420.0 19,889.0 20,367.0 20,846.0 Life expectancy 44.5 44.0 43.6 43.2 42.9 42.5 42.1 42.1

Secondary school enrolment ratio, gross (per cent) 7.0 8.0 9.5 11.0 13.0 13.2 13.2 13.2

GDP (US$ million) 4,075.7 4,201.0 4,666.7 5,698.3 6,578.8 7,215.0 8,106.0 9,728.0

GDP per capita at constant price 2003 (US$) 230.8 243.4 252.1 279.6 289.8 362.9 398.2 466.7

Real GDP (percentage change, constant prices, 2003 = 100) 12.3 9.2 6.5 7.9 8.4 8.5 7.3 7.0

Terms of trade (annual percentage change) -2.9 -3.7 -1.3 9.4 5.3 27.3 4.4 ..

Gross official reserves (end of period - US$ million) 727 825.0 988.0 1,160.0 1,103.0 1,241.0 1,524.0 ..

In months of imports, c.i.f. 5.2 5.4 5.4 5.8 4.6 4.4 5.0 ..

Net present value of public external debt to exports of goods and services (%) 109.8 92.0 102.0 92.0 108.0 63.0 55.0 ..

Debt service ratiob (end-period) 6.9 6.4 6.1 4.7 4.6 5.3 5.4 ..

Table I.1 (cont'd)

1 UNDP (2007). 2 HIV/AIDS - The picture. Viewed at: http://www.unicef.org/mozambique/hiv_aids_2045.html

[21 July 2008].

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2001 2002 2003 2004 2005 2006 2007 2008a

Sectoral distribution of GDP Percent of GDP

Agriculture including livestock, hunting, forestry and fisheries 25.2 25.6 25.4 24.6 24.2 24.7 24.5 23.0

Mining and quarrying 0.5 0.5 0.6 0.9 0.9 0.8 1.3 1.3

Manufacturing 13.7 13.6 15.0 15.7 14.8 14.5 13.3 13.5

Electricity and water 4.4 4.4 4.6 4.9 5.3 5.5 5.6 5.6

Construction 3.3 3.3 3.4 3.0 3.1 3.4 3.2 3.4

Commerce 9.9 9.5 9.5 9.5 9.8 10.0 10.9 10.8

Vehicle repair 0.5 0.4 0.4 0.4 0.4 0.4 0.3 0.4

Hotels and restaurants 1.5 1.5 1.5 1.4 1.5 1.5 1.6 1.6

Transport, storage and communication 9.8 9.7 9.4 9.5 9.5 9.6 10.0 10.1

Financial activities 3.0 3.2 3.3 3.9 5.3 5.5 5.6 5.5

Real estate and location services 10.9 10.1 9.6 9.4 8.8 8.2 7.7 7.5

Public administration, defence, and obligatory social insurance 3.9 3.8 3.7 3.6 3.6 3.6 3.6 3.6

Education 3.4 3.2 3.3 3.4 3.5 3.5 3.7 3.8

Health and social work 1.2 1.2 1.2 1.2 1.2 1.2 1.3 1.4

Other collective service activities 2.4 2.2 2.1 2.0 1.9 1.8 1.7 1.7

Total value added (basic prices) 93.5 92.4 93.0 93.5 93.8 94.2 94.3 ..

Financial intermediation services indirectly measured -1.5 -1.7 -2.6 -2.8 -2.7 -3.2 -3.3 2.8

Taxes 8.0 9.2 9.6 9.3 8.9 9.0 9.0 ..

National accounts

Consumption 85.9 100.5 101.5 99.2 96.2 91.9 91.2 ..

Private 72.4 88.2 88.7 85.4 83.3 79.5 79.2 ..

Government 13.5 12.3 12.8 13.8 13.0 12.3 11.9 ..

Gross fixed capital formation 20.0 30.0 22.3 18.6 18.7 17.7 18.0 ..

Changes in inventories 5.9 -0.4 0.2 -0.3 -1.0 -0.7 -0.9 ..

Exports of goods and non-factor services 21.2 24.9 26.3 29.8 30.5 30.4 28.1 ..

Goods 17.0 17.7 20.6 25.8 26.5 26.9 24.2 ..

Non-factor services 4.1 7.2 5.6 4.0 4.0 3.5 3.9 ..

Imports of goods and non-factor services 32.9 55.1 50.2 47.3 44.4 39.3 36.3 ..

Goods 26.1 43.7 39.4 39.0 36.1 31.9 30.1 ..

Non-factor services 6.8 11.3 10.8 8.3 8.3 7.4 6.2 ..

Gross domestic savings (excluding grants) 7.6 10.5 6.0 6.2 1.9 3.1 2.8 3.1

Government -1.0 -1.1 -1.4 -1.6 0.2 0.8 0.6 0.2

Prices and interest rates

Inflation (CPI, percentage change)c 9.1 16.8 13.4 12.7 7.2 13.2 8.2 7.3

Interest rate (time deposit)d 6.3 7.5 8.2 7.5 7.4 8.8 10.3 10.1

Table I.1 (cont'd )


2001 2002 2003 2004 2005 2006 2007 2008a

Monetary aggregates (end period) Money supply (M1) 16.3 16.1 17.1 16.5 18.2 20.0 20.9 21.8

Money supply (M2)e 29.2 28.0 28.3 24.9 28.6 30.9 33.3 34.6

Credit to private sector 12.6 12.9 11.4 9.4 11.8 13.4 13.8 15.1

Exchange rate Conversion rates: meticais per US$ (annual average) 20.7 23.9 23.9 18.9 24.2 26.0 23.8 24.1

Real effective exchange rate (end of period)f .. -6.3 -2,7 17,5 -6,3 1,8 6.5 ..

Nominal effective exchange rate (end of period)f .. .. -10,9 17,9 -14.0 -3.0 2.2 ..

Central Government finances

Total revenue and grants 26.1 22.7 22.4 19.6 20.7 26.1 26.0 29.7

Tax revenue 11.0 11.0 12.0 11.3 12.2 13.2 14.4 14.4

Non-tax revenue 1.4 1.5 1.0 0.9 1.9 2.1 2.0 2.4

Grants 13.7 10.3 9.5 7.3 6.6 10.8 9.6 12.8

Total expenditure and net lending 32.1 27.9 26.5 23.7 22.9 27.5 29.0 35.1

Recurrent expenditure 13.5 13.9 14.4 13.8 13.9 14.4 15.8 16.6

Capital expenditure 15.4 12.5 11.7 9.1 8.6 12.0 12.1 16.6

Net lending 3.2 1.5 0.4 0.8 0.4 1.0 1.1 2.0

Overall balance (before arrears clearance, cash basis) -19.9 -17.3 -14.0 -11.7 -8.9 -12.5 -13.5 -18.3

Overall balance (after arrears clearance, cash basis) -6.1 -7.0 -4.5 -4.4 -2.3 -1.7 -3.9 -5.5

.. Not available.

a Data are based on projections. b Percent of exports of goods and services; 2006 and 2007 data are based on projections. c Index (2000 = 100), period averages. d Six-month time deposit at commercial banks - weighted average of monthly deposit rates. e Includes all foreign currency deposits held in commercial banks. f Minus sign means depreciation.

Source: IMF (2008), Country Report No. 08/15, January; IMF (2008), Country Report No. 08/220, July; IMF (2005), Country Report No. 05/311, August; IMF (2005), 2005 Article IV Consultation, Country Report N° 05/318, September; IMF (2004), Statistical Appendix, Country Report N° 04/51, March; Government of Mozambique (undated), Instituto Nacional de Estatistica. Viewed at: http://www.ine.gov.mz/indicadores_macro_ economicos/cn/indicadores_macro_economicos/cn/PIB/pib_oDespesa; IMF (2008), International Financial Statistics, IFS Cd-Rom, version 1.1.82; and African Development Bank (2008), Selected Statistics on African Countries, Vol. XXVII.

3. The leading sector of the Mozambican economy is services (accounting for approximately 55% of nominal GDP in 2007), followed by agriculture, including fisheries, livestock and forestry (25%), and manufacturing (13%). The agriculture sector, however, occupies about three quarters of the population, mostly engaged in subsistence farming on an informal basis.3 This explains the central role assigned to the agriculture sector in achieving the poverty-reduction objectives set out in the Action Plan for the Reduction of Absolute Poverty (PARPA II), aimed at reducing the incidence

3 A study on workers engaged in the informal sector conducted in 2004 by the Instituto Nacional de

Estatística (INE) found that the labour force consisted of about 10.2 million people of which 1.7 million were not employed, 802,000 were formally employed, and 7.7 million were engaged in informal activities. With respect to the latter, 90% were engaged in agricultural activities (INE, 2006).


of poverty from 54% of the population in 2003 to 45% in 2009.4 Megaprojects (i.e. investment in excess of US$500 million over project life), including those established under the Industrial Free Zone (IFZ) regime, have made a substantial contribution to GDP and export growth since Mozambique's first Trade Policy Review in 2001 (Chapter III(3)(vi)).5 Mozambique has considerable mining resources, which are not yet fully exploited; as a result, the contribution of the sector to GDP remained low, at 1.3% in 2007, and is estimated to remain at the same level in 2008, albeit an increase from 0.5% in 2001 (Table I.1). New megaprojects in mining, where production is scheduled to start in the near future, include the Mozambique Titanium Mineral project (Moma), and a coal project (Moatize). Persistent supply-side constraints include inadequate access to credit, insufficient supply of water and electricity, transport and telecommunications services, a shortage of skilled labour, and an environment for doing business that is characterized by high costs and poor governance.

(2) RECENT ECONOMIC DEVELOPMENTS

4. Since its first TPR in 2001, Mozambique has continued its economic reforms. In 2007, Mozambique was upgraded from the IMF Poverty Reduction and Growth Facility (PRGF) and has since pursued a macroeconomic stabilization and structural reform programme for the 2008-10 period, supported by a three-year Policy Support Instrument (PSI).6 The reforms are aimed at improving budgetary performance, improving the management of Mozambique’s natural resources, and addressing supply-side constraints to reduce the costs of doing business (Chapter II(2)). Other components of the structural reform programme include the restructuring of state-owned enterprises, such as PETROMOC, which would reduce associated subsidies and improve efficiency of fuel supplies. Overall, the various reforms are expected to improve the business environment and create favourable conditions for private investment.

5. These reforms have sustained Mozambique’s economic growth, which has remained strong since its first TPR, with an annual average growth rate of 8.7% during 2001-07 (Table I.1). Economic growth has been driven mainly by megaprojects in, inter alia, construction, electricity, and aluminium manufacturing and mining, with solid growth in restaurants and hotels, as well as transport and telecommunication services; average annual growth of the agriculture sector has been below the national average, and was disrupted by floods in 2002 (and more recently in 2008). Demand has been sustained by increased public sector spending (largely financed by substantial inflows of aid), megaproject-driven investment, and rising exports; growth of private consumption was weaker.

6. Public spending reached approximately 29% of GDP in 2007 (down from 32.1% in 2001), of which slightly less than half was on public investment. Total fiscal revenue amounted to 16.4% of GDP (from 12.4% in 2001); grants were estimated at 9.6% of GDP (Table I.1). A group of 19 foreign aid donors comprise Mozambique’s Program Aid Partners (PAPs), contributing directly to finance a substantial share of the State’s budget.7 The authorities have improved the budgetary expenditure management process since 2001, and the tax administration and collection system, by implementing the SISTAFE programme (Chapter II(2)). On the revenue side, reliance on trade taxes has been reduced by the lowering of tariff rates in 2002, nevertheless, these remain important. Revised personal income tax, corporate income and VAT regimes were adopted in 2007 for

4 IMF (2007b). 5 The three most important megaprojects are: Mozal, which produces aluminium billets from imported

alumina, using electricity generated by the Cahora Bassa hydroelectric plant, itself a megaproject; and the Southern Africa Gas project, a pipeline financed by SASOL of South Africa.

6 IMF (2008b). 7 The PAPs concluded their joint annual review of performance on 30 April 2008. Mozambique News

Agency, AIM report, No. 358, 9 May 2008. Viewed at: http://www.poptel.org.uk/mozambique-news/ newsletter/aim358.html#story9 [25 September 2008].


application in 2008, and a new excise tax regime was to be adopted in 2008. In 2002, the incentives made available to investors were harmonized and consolidated into a single Code of Fiscal Benefits, and incentives for mining and petroleum investment projects have been regulated separately since 2007 (Chapter II(4)). In addition, the new Government Procurement Code provides a legal framework which, in principle, favours competitive bidding and should contribute to the improved use of public resources (Chapter III(4)(iv)).

7. Monetary policy and the issuance of the national currency have been managed by the Central Bank, the Bank of Mozambique (Banco de Moçambique, BoM), since its establishment in 1992.8 Since 1 July 2006, the currency has been the "New Family" Metical, following the currency reform.9 In 2007, the BoM set out its monetary policy with "price stability" as the central objective, aiming for an annual inflation rate of 6-6.5%; it sets reserve money as the operational target, and the broad monetary aggregate (M3) as the intermediate target.10 Established in June 2007, the BoM’s Monetary Policy Committee (MPC) meets monthly and issues a press release on its deliberations to ensure greater transparency. The instruments of monetary policy used by the BoM are the standing lending facility and standing deposit facility (at 14.5% and 10.25% respectively since the last adjustment in January 2008), and the compulsory reserve requirement (9% for overall deposits since April 2008), in the context of an on-going assessment of economic growth and price developments. The BoM also manages liquidity by intervening in the market for treasury bills, as well as in the interbank foreign exchange market.

8. Price developments are officially monitored on the basis of the Consumer Price Index (CPI) for the capital city of Maputo. During the review period, exogenous shocks, such as the increases in petroleum and cereal prices have contributed to domestic inflationary pressures. The CPI for Maputo recorded an annual rate of increase of 8.2% in 2007, down from 13.2% in 2006. The BoM will continue to target base money to reach its inflation target in 2008. The real effective exchange rate has fluctuated over the period (Table I.1).

9. Mozambique’s foreign exchange regime continues to be governed by a 1996 law11, which applies to all persons located within the Mozambican territory. According to the Regulations in force in 200812, all foreign exchange operations are subject to registration and authorization by the BoM, and residents are allowed to hold foreign currency accounts abroad or in Mozambique. All operations regarding the import or export of goods and services are domiciled with a bank. Repatriation of net profits and dividends is subject to authorization, and application must be made for this purpose; a simplified procedure applies to megaprojects.13 Mozambique’s Parliament is considering a new foreign exchange law submitted in September 2007, and following its adoption and the issuance of its regulations, Mozambique intends to accept Article VIII of the IMF Agreements.14

8 Banco de Moçambique online information. Viewed at: http://www.bancomoc.mz. 9 Law No. 7/2005 of 20 December 2005. The law established a conversion rate of 1,000 units for the

metical, so that Mt 1,000 in circulation in 2005 was converted to Mt 1.00 of the New Family. See Banco de Moçambique (undated b).

10 Banco de Moçambique (undated a). 11 Law No. 3/96 of 4 January 1996. See BIS (1999). 12 Notice No. 5/GGBM/96 of 19 July 1996. These regulations were last revised in 2006 to enter into

effect on 1 January 2007, but according to information provided by the authorities, these revisions were suspended.

13 The BoM’s Regulations on the Imports and Exports of Goods and Services were last revised in 2006 to enter into effect on 1 January 2007, but according to information provided by the authorities, these revisions were suspended.

14 IMF (2008), Appendix I.


10. Since its first TPR in 2001, Mozambique has greatly reduced the level of its external indebtedness, as a result of debt relief. In September 2001, Mozambique reached the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative, with total debt relief worth US$4.3 billion.15 In 2005, Mozambique was granted 100% multilateral debt relief by the IMF16, and was pursuing debt rescheduling agreements with bilateral creditors in 2008. As a result, its external debt (net present value) as a percentage of exports of goods and services decreased from 109.8% in 2001 to 55% in 2007, and the debt service ratio declined from 6.9% to 5.4% (Table I.1).

(3) TRADE AND INVESTMENT

(i) Trade in goods and services

11. Mozambique’s ratio of trade in goods and services to nominal GDP increased to 64.4% in 2007, compared with 54.1% in 2001, as a result of the expansion of both exports and imports (Table I.1). Exports of goods amounted to US$2,412.1 million in 2007 (Table I.2), while imports of goods were US$2,811.1 million, up by a factor of 2.7 since 2001. Megaprojects accounted for 70% of exports of goods and 24% of imports of goods in 2006; net exports by megaprojects amounted to US$1 billion in 2006, up from US$210 million in 2001.17 Mozambique is a net importer of services, including in the sub-categories of transportation, travel, and construction services (Chapter IV(5)(ii)). Net aid inflows more than doubled during the review period. Overall, the external current account remained in deficit throughout the period accounting for 9.8% GDP in 2007.

Table I.2 Balance of payments, 2001-07 (US$ million)

2001 2002 2003 2004 2005 2006 2007

Current account -657.2 -869.2 -816.5 -607.4 -760.7 -773.2 -795.0 Trade account -271.3 -666.6 -604.2 -345.8 -497.1 -267.7 -399.0 Exports (f.o.b.) 726.0 809.8 1,043.9 1,503.9 1,745.3 2,381.1 2,412.1 Imports (f.o.b.) -997.3 -1,476.5 -1,648.1 -1,849.7 -2,242.3 -2,648.8 -2,811.1 Services (net) -368.7 -237.6 -270.0 -275.8 -306.7 -371.7 -396.9 Credit 249.7 339.4 303.9 255.6 341.9 386.4 458.7 Travel 63.6 62.9 97.6 95.3 129.6 139.7 163.4 Transportation 55.7 101.7 90.5 80.0 89.3 105.0 128.6 Other 130.4 174.8 115.8 80.3 122.9 141.7 166.8 Debit -618.4 -577.0 -573.9 -531.4 -648.6 -758.1 -855.6 Travel -114.3 -113.0 -139.8 -134.2 -176.1 -179.5 -180.0 Transportation -157.8 -179.5 -190.5 -190.7 -229.9 -273.1 -294.7 Other -346.2 -284.5 -243.6 -206.5 -242.6 -305.5 -380.8 Income (net) -234.7 -603.2 -165.5 -299.5 -359.9 -634.5 -591.6 Credit 56.0 52.2 55.9 74.5 98.9 159.8 193.6 Debit -290.7 -655.3 -221.4 -374.0 -458.8 -794.3 -785.2 Transfer (net) 217.5 638.3 223.1 313.8 403.0 500.7 592.4 Credit 254.6 827.0 293.2 370.5 479.0 574.5 657.8 Workers' remittances 41.0 29.0 29.9 2.5 5.8 15.8 30.9 Debit -37.1 -188.7 -70.0 -56.7 -76.0 -73.8 -65.4 Workers' remittances -32.2 -16.3 -20.5 -11.3 -10.8 -12.3 -25.9

Table I.1 (cont'd)

15 IMF (2001). 16 IMF Press Release No. 05/298, "IMF to Extend 100 Percent Debt Relief to Mozambique Under the

Multilateral Debt Relief Initiative". Viewed at: http://www.imf.org/external/np/sec/pr/2005/pr05286.htm [22 July 2008].

17 IMF (2008b); IMF (2005); and IMF (2007d).


2001 2002 2003 2004 2005 2006 2007

Capital and financial account 232.0 -509.7 643.6 531.6 283.1 -1,167.2 771.5 Capital account (net) 256.8 222.1 270.7 578.1 187.9 334.5 415.1 Credit 256.8 222.5 271.2 581.2 191.8 336.8 416.1 Debit 0.0 -0.4 -0.5 -3.1 -3.9 -2.3 -1.0 Financial account (net) -24.8 -731.7 372.8 -46.5 95.2 -1,501.7 356.4 Direct investment abroad 0.0 0.0 0.0 0.0 0.0 -0.4 0.3 Direct investment in Mozambique, n.i.e. 255.4 347.6 336.7 244.7 107.9 153.7 427.4 Portfolio investment assets 0.0 32.2 5.0 -25.4 -88.8 -124.2 -117.5 Portfolio investment liabilities., n.i.e. 0.0 0.0 0.0 0.0 0.3 0.4 0.3 Other investment assets -33.8 -207.7 -77.1 -88.7 -78.5 -13.8 -375.3 Other investment liabilities., n.i.e. -246.4 -903.8 108.2 -177.1 154.3 -1,517.5 421.2 Net errors and omissions -59.6 -60.0 208.2 216.4 281.0 141.7 79.6 Overall balance -484.9 -1,438.8 35.3 140.7 -196.6 -1,798.8 56.1 Reserves and related items 484.9 1,438.8 -35.3 -140.7 196.6 1,642.6 -56.1 Indicator (%) Trade account/GDP -6.7 -15.9 -12.9 -6.1 -7.6 -3.7 -4.9 Current account/GDP -16.1 -20.7 -17.5 -10.7 -11.6 -10.7 -9.8 Overall balance/GDP -11.9 -34.2 0.8 2.5 -3.0 -24.9 0.7

Source: IMF International Financial Statistics CD-ROM, and IMF, BOP CD-ROM; and Government of Mozambique (2007), Boletim Annual da Balança de Pagamentos, Ano 4, No. 04, p. 43.

12. Mozambique’s structure of exports has not changed significantly since 2001 (Table AI.1); aluminium and aluminium alloys (processed from alumina imported from Australia) continue to be Mozambique's main exports as a result of the expansion of the smeltering capacity of the megaproject Mozal (Chart I.1). The EC is the principal export market for Mozambique’s aluminium (Chart I.2 and Table AI.2), where it benefits from preferential access. Other important export categories include fuels (electricity and natural gas), making South Africa a leading export destination in Africa. Raw and processed sugar exports are also significant. Further diversification of exports is anticipated from the exploitation of Mozambique’s mineral sands and coal resources. Mozambique’s structure of imports has remained largely unchanged (Table AI.3), as it continues to import all of its oil requirements (10% of imports in 2007), as well as food, medicines and other consumer goods, cement, machinery, and equipment. In 2007, South Africa and Australia were Mozambique’s principal import sources (Table AI.4).


(ii) Foreign direct investment

13. FDI trends have followed mainly the course of megaproject commitments. Both the absolute and relative (to GDP) levels of FDI rose sharply in 2002 and 2003, coinciding with the expansion of the Mozal aluminium plant and the construction of the SASOL gas pipeline (Tables I.2 and I.3). Actual inflows amounted to US$427.4 million in 2007, although approved FDI was substantially larger because of the pledged commitments to develop Mozambique’s coal and titanium sands resources in 2007.

Table I.3 Foreign direct investment, 2003-07 (US$ million)

2003 2004 2005 2006 2007 Totals Share of totals

Actual FDI 336.7 244.7 107.9 153.7 427.4 1,270.4 Approved projects 120.0 113.2 164.6 163.4 5,696.3 6,257.5 100.0% Agriculture and agri-industry 26.1 19.0 41.4 20.8 85.9 193.2 3.1% Fisheries and aquaculture 1.1 8.6 0.6 8.2 9.8 28.2 0.5% Banking and insurance 0.1 - 1.9 2.4 1.1 5.5 0.1% Construction 3.6 1.6 4.0 3.4 11.5 24.1 0.4% Industry 8.9 15.1 16.5 17.4 192.8 250.7 4.0% Mining 4.2 1.6 3.8 7.4 5,177.3 5,194.4 83.0% Transport and communications 60.5 12.2 4.9 7.7 25.6 111.0 1.8% Tourism 11.1 50.7 84.0 76.6 138.7 361.1 5.8% Other 4.3 4.3 7.5 19.4 53.7 89.3 1.4%

Source: Mozambican authorities. (4) OUTLOOK18

14. Mozambique remains committed to pursuing prudent fiscal and monetary policies. Therefore, its macroeconomic conditions are expected to remain stable. The medium-term economic outlook for Mozambique, for 2009-11 remains positive, barring natural disasters such as floods, droughts or cyclones. Real GDP growth of 7% is expected for 2009 and 2010, followed by a deceleration to 6.4% in 2011. Inflation is to slow, though less than previously envisaged due to fuel and food price shocks. Counting on a continued and sustained increase in foreign aid inflows, public investment should remain high, representing 16%, 15%, and 14% of GDP in 2009, 2010, and 2011 respectively. Exports (in U.S. dollars) are expected to continue to increase, but at more moderate rates than over 2001-06, rising by just 15% over 2007-11, while imports are forecast to rise by 28%, widening the trade deficit. Megaprojects are expected to continue to make a positive annual average contribution to net exports, of about US$1.1 billion for 2007-11.

15. Prospects for continued economic growth and for consolidating macroeconomic stability, while reducing poverty, depend largely on the continuation of the reform process. This is to focus on public sector reform, improving the business environment to enhance private-sector development, and ensuring that natural resources are managed transparently. An important aspect of the reforms is the development of human capital. Hence, health and education provided to a wider group of beneficiaries, through a more efficient system, and infrastructure are expected to consume over 65% of expenditure. The authorities anticipate continued substantial FDI flows to megaprojects in the mining sector; this will improve management of natural resources and increase the net contribution of megaprojects to the national economy, a central government objective. The Ministry of Finance is closely examining the fiscal incentives to be granted prior to project approval, and the new incentives scheme for mining and petroleum projects will be strictly implemented.

18 IMF (2008b).


II. TRADE AND INVESTMENT REGIMES

(1) GENERAL FRAMEWORK

1. The 1990 Constitution of Mozambique was amended in 2004.1 The principal modifications made in 2004, which have since been progressively implemented by law, concern in particular: the law-making powers granted to the executive through the introduction of the decree-law; decentralization of decision-making powers; reform of the court system; the creation of an Ombudsman (not enacted); and the establishment of a Superior Council of the Media.

2. The Constitution confers powers on the President of the Republic, the Assembly of the Republic, the Government (or Council of Ministers), the courts and the Constitutional Council; the current organization of powers is governed by the amendments adopted in 2004. The President is elected by direct universal suffrage for a term of five years, and can be (consecutively) re-elected once only.2 He is the Head of State and presides over the Council of Ministers, composed of the Prime Minister, appointed by the President, and the Ministers. The unicameral Assembly of the Republic, the highest legislative body of the Republic of Mozambique, comprises 250 deputies elected for a five-year term (renewable). The legislative and presidential elections are held on the same cycle. The Council of Ministers formulates and implements government policies.

3. Legislation may be initiated, inter alia, by the deputies, the President, and the Council of Ministers.3 The Assembly adopts draft laws by majority vote of those present (provided that at least half of the deputies are present), these are then promulgated by the President.4 The 2004 Constitution introduced the decree-law, a legislative act passed by the Council of Ministers pursuant to the authorization of the Assembly of the Republic.5 The Council of Ministers may ratify agreements, including on trade and investment, by ministerial resolution, while the Assembly ratifies agreements and treaties by the adoption of laws (section (3)); the WTO Agreement was ratified by the Council of Ministers in 1994.6

4. Under the Mozambican Constitution, the hierarchy of legal instruments is: (i) ratified international treaties and agreements, laws, and decree-laws; (ii) decrees; (iii) ministerial resolutions; and (iv) ministerial diplomas. The Constitution provides for the legal acts of the Assembly, President, and Council of Ministers to be published in the Government Gazette (Boletim da Republica), which is available only as a printed document. The main trade-related laws, decree-laws, and resolutions of Mozambique are set out in Table II.1.

1 The Constitution of 30 November 1990 was drafted as part of the peace negotiations that ended the

civil war. Following the General Peace Agreement (GPA) signed in 1992, the first multi-party elections were held in 1994. The Constitution was revised in 1998 and again in 2004. The text of the Constitution, as of 1 January 2005, may be viewed at: http://confinder.richmond.edu/admin/docs/Constitution_(in_force_21_ 01_05)(English)-Mozlegal.pdf [1 April 2008].

2 The most recent presidential election was held in December 2004 ("Elections in Mozambique". Viewed at: http://africanelections.tripod.com/mz.html [1 April 2008]).

3 Article 183 of the Constitution. 4 According to Article 163 of the Constitution, the President shall promulgate laws within 30 days

following their reception. Prior to the expiration of that deadline, the President may submit a request to Parliament, which cannot be refused, to reconsider the law. However, if Parliament upholds the law by a two-thirds majority vote, the President is required to promulgate it.

5 Under Articles 143 and 181 of the Constitution, a decree-law is adopted by the Council of Ministers and is promulgated by the President. A decree-law passed by the Council of Ministers is deemed automatically ratified unless its ratification is demanded by a minimum of 15 deputies during the session of the Assembly of the Republic held immediately after its publication.

6 Resolution of Council of Ministers No. 31/94 of 20 September 1994.


Table II.1 Mozambique's principal trade-related laws and regulations, April 2008

Sector Instrument/Law

Tariff Decree No. 39/2002 of 26 December 2002, as amended by Law No. 03/2007 of 7 February 2007

Customs valuation Decree No. 38/2002 of 11 December 2002 Customs procedures Diploma Ministerial No. 262/2004 of 22 December 2004 Value added tax Law No. 32/2007 of 31 December 2007 Excise taxes Decree No. 52/1998 of 29 September 1998, as amended by Decree

No. 37/2002 of 11 December 2002 Import prohibitions and licences Decree No. 39/2002 of 26 December 2002 Pre-shipment inspection Decree No. 56/1998 of 11 November 1998 Technical standards and regulations Resolution No. 51/2003 of 30 November 2003 Sanitary and Phytosanitary measures Decree No. 15/2006 of 22 June 2006 and Diploma Ministerial No. 9/2007 of

31 January 2007 Investment (except for mining and petroleum) Law No. 3/93 of 24 June 1993 and its regulations contained in Decree

No. 14/93 of 21 July 1993 Industrial Free Zone Decree No. 62/99 of 21 September 1999, as amended by Decree No. 35/2000

of 17 October 2000 Mining Law No. 14/2002 of 26 June 2002 Petroleum Law No. 3/2001 of 21 February 2001 Fiscal Benefits Code Decree No. 16/2002 of 27 June 2002 Commercial Code Decree No. 2/2005 of 27 December 2005 Labour Law Law No. 23/2007 of 1 August 2007 Protection of industrial property Decree No. 4/2006 of 12 April 2006 Land Law Law No. 19/97 of 1 October 1997 Protection of copyright and related rights Law No. 4/2001 of 27 February 2001 Competition Resolution No. 37/2007 of 24 July 2007 Privatization of State-owned enterprises Law No. 16/75 of 13 February 1975 Government procurement Decree No. 54/2005 of 13 December 2005 Flora and fauna Law No. 10/99 of 7 June 1999 Fisheries Decree No. 43/2003 of 10 December 2003 Aquaculture Decree No. 35/2001of 11 November 2001 Hydrocarbons (downstream activities) Decree No. 63/2006 of 26 December 2006 Electricity Law No. 21/97 of 1 October 1997 Water Law No. 16/91 of 3 August 1991 Ground transport (automobiles) Decree No. 24/89 of 8 August 1989 Ground transport (public) Decree No. 39/2005 of 29 August 2005 Maritime transport Law No. 4/96 of 4 January 1996 Civil aviation Resolution No. 40/2002 of 14 May 2002 Telecommunications Law No. 8/2004 of 11 July 2004 Tourism Law No. 4/2004 of 17 June 2004 Foreign exchange regime Law No. 3/96 of 4 January 1996 Banking services (credit and microfinance institutions) Law No. 9/2004 of 21 July 2004 Insurance Law No. 3/2003 of 21 January 2003

Source: Mozambican authorities.

5. Judicial authority is vested in the Supreme Court, the Administrative Court and the courts of justice. The court structure has four layers: a Supreme Court in Maputo, high courts of appeal, provincial courts, and district courts; the high courts of appeal were introduced as a result of the 2004 Constitution to reduce the number of cases dealt with by the Supreme Court.7 The Administrative

7 Open Society Foundation (2006).


Court is the highest body in the hierarchy of administrative, customs, and fiscal courts. The courts of justices are empowered to deal with commercial disputes, and various mechanisms are provided for the settlement of disputes between foreign investors and the State (section (4)). Judges are appointed by the President upon the recommendation of the Superior Council of the Judiciary, and the Assembly approves nominations. The Constitutional Council rules on the constitutionality of treaties, laws, and decree-laws, as well as conflicts of jurisdiction, and makes prior evaluations of referenda.

6. The territory of Mozambique is subdivided into ten provinces and the capital city of Maputo. The 2004 amendments to the Constitution specify that provinces are headed by Governors, which preside over Governments, whose members are appointed centrally, while legislative power is entrusted to Provincial Assemblies, elected for a five-year term. Effective implementation of decentralized decision-making, and the associated human and financial resources to implement these decisions, is planned. However, decentralized decision-making will not cover fiscal matters, including in regard to tax incentives granted to investment projects.

7. The Ministry of Industry and Commerce (hereinafter the "Ministry of Commerce", MIC) formulates and implements trade and industrial policy. The Ministry is in charge of WTO-related matters, and of negotiating trade and investment agreements. Other ministries involved in trade related matters include the Ministry of Finance, in charge of the tariff, customs, taxation, and government procurement, as well as those responsible for sectoral matters. Inter-ministerial committees are also involved in the activities of the Ministry of Commerce, as was the case for the preparation of this Report; however, there does not appear to be a permanent inter-ministerial committee dedicated to trade policy, including WTO, matters or meeting on a regular basis to review them.

8. Public/private sector dialogue is maintained primarily through the Confederation of Economic Associations (Confederação das Associações Económicas, CTA) created in 1999.8 The CTA is involved formally, through an inter-institutional committee, as a stakeholder in the formulation and implementation of trade and investment policies.

(2) POLICY OBJECTIVES

9. Government policy is articulated in Five-Year Plans, which are evaluated by the Assembly of the Republic (Article 198 of the Constitution); the current plan covers the period 2005-09.9 Mozambique’s economic and social development strategy for 2007-09, is set out in the Action Plan for the Reduction of Absolute Poverty (PARPA II) adopted in 2006.10 Since the adoption of PARPA I in 200111, poverty-reduction goals and programmes are integrated in the Government’s Five-Year Plans.

10. PARPA II's major objective is to reduce the incidence of poverty from 54% of the population in 2003 to 45% in 2009. The plan has three pillars: economic development, human capital, and governance. As regards economic development, the authorities are focussing on rural development, fostering the national business community, and encouraging investment (section (4)). Mozambique has an industrial development policy (Chapter IV(3)), but the Government is relying on the development of agriculture, mining, and tourism to accelerate economic growth, and it encourages both national and foreign direct investment in these sectors. The State is seeking to strengthen the private sector and improve the international competitiveness of goods and services by dismantling the

8 CTA online information. Viewed at: http://www.cta.org.mz/ [19 June 2008]. 9 Government of Mozambique (2005). 10 IMF (2007b). 11 Government of Mozambique (2001).


numerous supply-side constraints, and in particular improving access to basic infrastructure and to credit. Improvement of human capital is key to attaining these targets. In this respect, the goal is to improve access of the population to education (including business-related skills), clean water, and medical services, with a particular focus on the battle against HIV/AIDS, malaria, and tuberculosis.

11. PARPA II also revises the content of Mozambique’s Trade Policy and Strategy (TPS), adopted in April 1999.12 It states that an international trade policy and a strategy for regional economic integration in Southern Africa and in the major world markets is to be designed, that is "favorable, in aggregate terms, to Mozambican producers and consumers".13 The authorities specifically highlighted the importance to fiscal revenue of duties and taxes collected on international trade, and emphasized the role of the tariff in promoting industrial development and job creation. The authorities note that the process of revising Mozambique’s trade policy and strategy is benefiting from the Integrated Framework. In principle, Mozambique gives priority to deepening trade and investment ties with its partners in the Southern African Development Community (SADC), through their Regional Indicative Strategic Development Plan (RISDP) (section (3)(ii)(b)).14 However, Mozambique also recognizes the importance of access for its goods and services to a wider set of markets, and thus seeks to attract tourists and investors from around the world.

12. The authorities are aware of the negative impact of poor governance on Mozambique's economy, and they have considered this as a priority under PARPA II. To this end, Mozambique has taken several measures to deal with governance issues, which have been financed mainly with foreign aid.15 The measures include the adoption of a new government procurement regime16; upgrading the Anticorruption Unit to a Central Office for Combating Corruption (which has carried out several high-level investigations); implementing the State's Financial Administration System (Sistema de Administração Financiera do Estado, SISTAFE) to improve the accountability of tax collection and the transparency of the allocation of funds; and restructuring Customs (from 1996 to 2005). In 2006, the authorities launched a National Anti-corruption Strategy17; and, in order to improve transparency, announced their intention to join the Extractive Industries Transparency Initiative (EITI), which concerns transparency of State receipts generated from natural resource-based enterprises; this has not yet been formalized in a candidacy.18 The creation of an Ombudsman to protect citizens’ rights in relation to the public administration is foreseen under the 2004 Constitution, but has not yet been enacted.19

12 Ministry of Industry and Trade (1999). 13 IMF (2007b). 14 SADC online information, "Corridors driving infrastructure development". Viewed at: http://www.

sardc.net/editorial/ sadctoday/view.asp?vol=352&pubno=v9n1. 15 ADB Document ADF/BD/IF/2006/54 "Mozambique: Country Governance Profile", 22 March 2006.

Viewed at: http://www.afdb.org/pls/portal/url/ITEM/4B53DE2232C471A3E040C00A0C3D6960 [6 April 2008].

16 Decree No. 54/2005 of 13 December 2005. 17 CIRESP (2006). 18 Extractive Industries Transparency Initiative (EITI). Viewed at: http://eitransparency.org/

[9 April 2008]. 19 Chapter III, Title XII of the Constitution.


(3) TRADE AGREEMENTS AND ARRANGEMENTS

(i) WTO

13. Mozambique signed the Marrakesh Agreement on 15 April 1994 and became a WTO Member on 26 August 1995.20 Mozambique is a least developed country (LDC). It is not a party to any of the plurilateral agreements or to the protocols and agreements concluded under WTO auspices. Mozambique grants at least most-favoured-nation (MFN) treatment to all its trading partners.

14. The concessions made by Mozambique during the Uruguay Round are contained in Schedule CXIX for goods (Chapter III(2)(iv)(a)), and document GATS/SC/58 with regard to services (Chapter IV(5)). Under its Uruguay Round commitments, Mozambique bound tariffs on all agricultural products at a ceiling rate of 100%. Tariff bindings on non-agricultural products are very limited; only 19 lines at the HS 1996 eight-digit level were bound at either 5% or 15%. "Other duties and charges" on all bound items are bound at 100%. Mozambique's specific service commitments concern only banking and other financial services (excluding insurance) (Chapter III).

15. As an LDC, Mozambique benefited from transitional periods to implement a number of its commitments under various WTO Agreements. Since its first TPR in 2001, Mozambique has made some progress in the implementation of WTO Agreements (e.g. Customs Valuation and IPR) (Chapter III), but it has only notified its implementation of the Agreement on Customs Valuation, through a decree adopted by the Government on 11 December 2002.21 This is the only notification Mozambique has made to the WTO, other than informing the TRIPS Council of its contact point for industrial property matters in 1997.22 Mozambique participated in the WTO Ministerial Conferences held in 2001 and 2003 (but not in 2005)23, and generally supported the positions of the LDCs, the African Group, the ACP countries, and the Group of 77 Developing Countries on questions relating to multilateral obligations and the strengthening of technical assistance activities.

16. Mozambique is eligible for the WTO’s trade policy courses and has benefited from several other types of technical assistance offered by the WTO. This includes the completion in 2004 of a Diagnostic Trade Integration Study (DTIS) under the auspices of the Integrated Framework, and Mozambique is also one of the eight JITAP II countries. Nonetheless, further technical assistance is needed (Annex II.1), as Mozambique’s participation in the WTO system continues to encounter problems similar to those noted at the time of its first TPR in 2001. For instance, Mozambique has failed to comply with WTO notification obligations in most areas, with the result that the information available to WTO Members on Mozambique’s trade regime is very limited. Capacity building in a number of other areas would also be desirable, including WTO Agreements and the negotiations under the Doha Agenda. Moreover, despite maintaining a diplomatic mission in Geneva, the level of resources continues to be an obstacle to Mozambique's more active participation in day-to-day WTO activities.

20 Resolution of Council of Ministers No. 31/94 of 20 September 1994. 21 WTO document G/VAL/N/1/MOZ/1, 4 July 2005. 22 WTO document IP/N/3/Rev.2/Add.5, 9 July 1997. 23 WTO documents WT/MIN(01)/ST/84, 11 November 2001, and WT/MIN(03)/ST/74,

12 September 2003.


(ii) Regional trade agreements

(a) African Union24

17. Mozambique is a founding member of the African Union (AU), the successor to the Organization of African Unity (OAU).25 The aim for the AU is to form an economic and monetary union with institutions including: the Conference of Heads of State and Government (already established), the Council of Ministers (established), the Peace and Security Council (established), the Commission of the Union (established)26, the Pan-African Parliament (established), together with a Central Bank, a Monetary Fund, an African Investment Bank, a Court of Justice, an Economic, Social and Cultural Council (statutes already prepared), and several technical committees.

18. The African Economic Community (AEC) was founded in June 1991 under the auspices of the OAU, now the AU, under the terms of the Treaty of Abuja. This treaty provides for the creation of an African common market in six stages over 34 years. The integration process is based on the coordination and harmonization of tariff and non-tariff measures between various trade and subregional groups (known as Regional Economic Communities (RECs)), with a view to establishing a continent-wide customs union. Mozambique belongs to the Southern African Development Community (SADC), one of the seven RECs recognized by the African Union.

19. The New Partnership for Africa's Development (NEPAD), an AU initiative launched at the Lusaka (Zambia) Summit in 2001 is aimed, inter alia, at developing the appropriate infrastructure to support the process of regional integration and at improving governance.27 As a result, in 2004 Mozambique joined NEPAD’s African Peer Review Mechanism (APRM) a self-monitoring mechanism adopted in 2003; Mozambique has yet to submit its first review.28

(b) Southern African Development Community (SADC)29

20. Mozambique is a founding member of the SADC, which was established in 1992.30 The objectives of SADC (Article 5 of the Treaty) are to promote economic development, peace, and security for the people of Southern Africa, through regional integration and the development of complementary national and regional strategies and programmes. The member states have emphasized that all of SADC's activities and programmes must address poverty alleviation and that HIV/AIDS must be accorded priority, as a major threat to the attainment of SADC's objectives. The institutional framework of the SADC comprises the Conference of Heads of State and Government, the Council of Ministers, the SADC, and the Organ on Politics, Defence and Security (OPDS). The

24 For information on the African Union, see: http://www.africa-union.org [10 April 2008]. 25 The Charter establishing the OAU was signed on 25 May 1963. The Constitutive Act of the African

Union was adopted at the summit held in July 2000 in Lomé (Togo). The African Union, which has replaced the OAU, was proclaimed on 11 July 2001 in Lusaka, Zambia, following ratification of the Constitutive Act by more than 44 of the OAU's 53 member states. The African Union was launched by the Durban Summit of 9 July 2002.

26 AU online information. Viewed at: http://www.africa-union.org/root/au/organs/The_Commission_ en.htm [16 June 2008].

27 NEPAD online information. Viewed at: http://www.nepad.org [10 April 2008]. 28 For information on NEPAD’s APRM, see: http://www.nepad.org/2005/files/ documents/156.pdf

[10 April 2008]. 29 SADC online information. Viewed at: http://www.sadc.int/ [13 April 2008]. 30 SADC succeeded the Southern African Development Coordination Conference (SADCC), of which

Mozambique was also a founding member. The members of the SADC are: Angola, Botswana, Democratic Republic of the Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. The Seychelles left the Community in 2002.


SADC Secretariat (located in Gabarone, Botswana), supports the Standing Committee of Officials, which reports to the Council of Ministers.

21. Regional economic integration objectives include the establishment of a free-trade area by 2008, a customs union by 2010, a common market by 2015 and a monetary union by 2016. The SADC free-trade area was established at the start of 2008 pursuant to the Protocol on Trade, as amended31; it was notified to the WTO under Article XXIV of the GATT 199432, and considered by Members at the meeting of the Committee on Regional Trade Agreements (CRTA) on 15-16 May 2007.33 The tariff reduction schedules of each of the member states provides for three main categories of products: those in category A (mainly capital goods) are to be liberalized from the first year of becoming a member; products in category B (e.g. goods that constitute major sources of customs revenue) are to be liberalized gradually by 2008; and products in category C (deemed sensitive and may not exceed 15% of each member's total value of merchandise trade) are to be liberalized by 2012. In addition, a fourth category (Category E (exempted)) covers goods ineligible for preferential treatment under general and security exceptions permitted by the Protocol. Sugar is not included in the free-trade regime and is the subject of special treatment.34 Other objectives of the Protocol on Trade include: the harmonization of customs rules and procedures; the adoption of international standards; the harmonization of sanitary and phyto-sanitary measures; the elimination of non-tariff barriers; and the liberalization of trade in services.

22. SADC's rules of origin are negotiated on a product-by-product basis (Chapter III(2)(iii)), and negotiations are ongoing for certain products, including wheat flour and products thereof, electrical products, and optical, photographic, measuring, and surgical instruments.35 Textiles and clothing originating in Malawi, Mozambique, Tanzania, and Zambia (MMTZ countries) were granted the one-stage tariff change for a period of five years (until 2009) subject to quotas for their exports into SACU, while the agreed general rule is the two-stage transformation or double tariff change.36

23. The Protocol on Trade, itself part of SADC’s Regional Indicative Strategic Development Plan (RISDP), adopted in 2003, aims to promote coherent national policy-making across members to attain SADC’s objectives.37 National programmes in key areas are clustered to promote integrated national policy-making. This integrated focus has led Mozambique to promote regional development "corridors".

31 The Protocol was signed on 24 August 1996 and entered into force on 25 January 2000, while the

amendment entered into force on 7 August 2000. The SADC members that have acceded to the Protocol are: Angola, Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe (the Democratic Republic of the Congo is not a signatory). Angola has not yet submitted its offer for tariff reduction to the members of the SADC (see WTO document WT/REG176/4, 12 March 2007).

32 WTO documents WT/REG176/N/1, 9 August 2004; WT/REG176/N/1/Rev.1; 27 August 2004; WT/REG176/1, 8 October 2004; WT/REG176/2, 8 October 2004; and WT/REG/176/2/Rev.1, 19 November 2004.

33 WTO document WT/REG176/M/1, 12 June 2007. 34 The long-term objective for sugar is to fully liberalize its trade within the SADC region after 2012.

The SADC market-access and cooperation agreement for sugar has been implemented since 2001, and incorporated as Annex VII to the amended Protocol on Trade. A SADC Regional Sugar Strategy is being developed in order to promote the sugar industries in the region.

35 For example, for electrical machinery, some members want to prevent "single assembly" of white goods, while for plastics they want to prevent the use of imported plastic waste.

36 Malawi Revenue Authority (undated). 37 SADC Secretariat (undated).


24. Mozambique is one of the SADC members engaged in negotiations with the EC with a view to concluding an economic partnership agreement (EPA) by December 2008 (section (c) below).38

25. Certain SADC members (not Mozambique) also belong to the East African Community (EAC) and/or to the Common Market for Eastern and Southern African (COMESA). In view of the overlapping membership of these agreements, and in the context of the EPA negotiations, EAC trade ministers recently recommended harmonizing the trade regimes of the three regional trade agreements, specifically with reference to a common external tariff and related trade policy areas.39

(c) Relations with the European Communities

26. Mozambique is a signatory to the Cotonou Agreement between the European Communities (EC) and 78 African Caribbean and Pacific (ACP) states, which entered into force in April 2003.40 The trade provisions comprise one of the mechanisms for cooperation between the ACP countries and the EC, whereby the latter grants duty-free admission for non-agricultural products and the majority of processed agricultural products originating in 78 ACP countries (excluding South Africa) on a non-reciprocal basis; a WTO waiver applied until 31 December 2007.41 Since 2004, Mozambique has also benefited from the preferences granted under the Sugar Protocol.42

27. The Cotonou Agreement provides for economic partnership agreements (EPAs) between the EC and various ACP regional groupings; Mozambique belongs to the SADC group (section (b) above). Mozambique and the EC initialled an Interim Agreement on Market Access, Economic Cooperation and Development, and Fisheries at the end of 200743, with a full EPA expected to be concluded by 31 December 2008. Certain ACP countries use the preferential access to the EC market provided under the "Everything but Arms" (EBA) initiative, to which Mozambique, as a LDC, is also eligible.44 However, according to the authorities, Mozambique uses only the preferences granted under the Cotonou Agreement, whose rules of origin are considered more favourable. The principal export concerned is aluminium.

28. The EC provides duty-free and quota-free access for all products originating in Mozambique, with the exception of rice and sugar Mozambique exports sugar to the EC under three types of preferential quota, under the Sugar Protocol of the ACP-EC Agreement, the special preferential sugar

38 Europa online information. Viewed at: http://trade.ec.europa.eu/doclib/docs/2007/december/

tradoc_137364.pdf [16 June 2008]. 39 Trade Law Centre for Southern Africa (2008). 40 The agreement was signed on 23 June 2000 at Cotonou, Benin, and entered into force officially on

1 April 2003 after its ratification. It replaced the Lomé Convention (in effect since 1975) whose fourth extension expired at the end of February 2000.

41 WTO document WT/MIN(01)/15, 14 November 2001. 42 The EC undertook to purchase some 1.4 million tonnes of sugar, at the guaranteed Community price,

from countries that are signatories to the Sugar Protocol under the Cotonou Agreement (Barbados, Belize, Republic of the Congo, Fiji, Guyana, Côte d'Ivoire, Jamaica, Kenya, Madagascar, Malawi, Mauritius, Mozambique, Suriname, St. Kitts and Nevis, Swaziland, Tanzania, Trinidad and Tobago, Uganda, Zimbabwe, and Zambia); the bilateral agreement between the EC and India contains identical provisions. The new market organization for sugar entered into force on 1 July 2006 and provides for a 36% cumulative reduction in the price of sugar on the European market between 2006 and 2009 (WTO document WT/TPR/S/177/Rev.1, 15 May 2007).

43 European Commission, DG Trade (2007). 44 Under this initiative, the EC has granted duty-free access since 2001, without any quantitative

restriction, to products originating from the LDCs (except for arms and ammunition). However, temporary exceptions apply to rice and sugar (until end 2009), but the exception for bananas ended in 2005 (WTO document WT/TPR/S/177/Rev.1, 15 May 2007).


regime (SPS)45, and the EBA initiative (Chapter IV(2)(iii)). The EPA foresees the continued implementation of the Sugar Protocol until 30 September 2009, followed by a transition period until 30 September 2015.

(d) Relations with the United States

29. Mozambique is one of 38 countries eligible for the African Growth and Opportunity Act (AGOA)46, established by the United States under its Generalized System of Preferences (GSP). Beneficiaries are granted duty-free and quota-free access to the U.S. market until 2015 for a range of products, including selected agricultural and textile products, with a general exception of clothing. However, Mozambique is among the 26 AGOA countries eligible for preferences on clothing, which allow, since 1 March 2002, for the inclusion of fabrics from third countries, a provision that will remain in force until 30 September 2012.47 Mozambique’s exports under AGOA and its GSP provisions increased 41% in 2006 to a total of $12 million.48 In addition, Mozambique benefits from preferential access for its sugar within the limit of a quota (Chapter IV(2)(iii)).

30. Mozambique signed a trade and investment framework agreement (TIFA) with the United States49, which provides a context for bilateral consultations on trade and investment matters; Mozambique and the United States had already concluded a bilateral investment treaty in 1998. Mozambique is also among the 11 countries of Sub-Saharan Africa eligible for a Millenium Challenge Account (MCA), but an agreement is still being developed.

(e) Other preferential trade agreements and arrangements

31. Since its previous review in 2001, Mozambique has signed preferential trade agreements with Malawi (2005) and Zimbabwe (2004), these superseded colonial trade arrangements.50 These agreements have not been notified to the WTO. The agreement with Malawi provides for each party to grant duty-free treatment to originating imports, with certain exceptions (e.g. beer, branded soft drinks, chicken, cooking oil, eggs, petroleum products, sugar, and tobacco). The agreement with Zimbabwe provides for similar duty-free treatment, with exceptions including beer, branded soft drinks, manufactured tobacco, road motor vehicles, and sugar. Both agreements stipulate that goods seeking preferential treatment need to enter Mozambique through specified customs posts, and vice versa. Mozambique is also a signatory to the Global System of Trade Preferences (GSTP) among developing countries.51

45 For a detailed explanation of the distinction between the Sugar Protocol and the Agreement on

Special Preferential Sugar Regime, see ACP Sugar online information. Viewed at: http://www.acpsugar. org/Overview.html [16 June 2008].

46 USTR (2007). 47 Mozambique is among the 17 AGOA countries that also benefit from the provision on handmade

(category 9) products. 48 USTR (2007). 49 USTR, Press Release, 21 June 2005, "United States and Mozambique Sign Trade and Investment

Framework Agreement". Viewed at: http://www.ustr.gov/Document_ Library/Press_Releases/2005/June/ United_States_Mozambique_Sign_Trade_Investment_Framework_Agreement.html [12 June 2008].

50 The 1959 Trade Agreement between Portugal and the Federation of Rhodesia and Nyasaland. 51 Parties to the GSTP Agreement. Viewed at: http://www.unctadxi.org/templates/Page_1702.aspx

[14 October 2008].


32. Many countries extend (non-reciprocal) preferential tariff treatment for goods originating in Mozambique under the Generalized System of Preferences (GSP). In addition, China grants "special preferential tariff treatment" to certain originating products from Mozambique.52

(4) INVESTMENT REGIME

(i) Overview

33. The main changes to Mozambique’s investment regime during the review period are the adoption of a new Commercial Code, a consolidated Code of Fiscal Benefits, and a new Labour Law. The Investment Code and its regulation remain in force53, and the Investment Promotion Centre (CPI) continues to operate as a "one-stop shop" to promote and facilitate national and foreign investment in Mozambique. Other laws related to investment are the Industrial Free Zones Regulation and the Land Law; the investment regime also comprises bilateral agreements on investment promotion and protection. Despite the Government’s efforts to improve the investment environment, investors in Mozambique still face many bureaucratic and infrastructural hurdles. For instance, the regime on access to land is considered restrictive, and other barriers to doing business include comprehensive licensing of activities54, and inspections of premises, as well as the level of taxation in the principal target sectors for investors. Hence, according to the World Bank, Mozambique ranks 141st out of 178 countries (in 2008) for ease of doing business, making it a "high cost economy", including in relation to neighboring countries also competing for foreign direct investment.55

(ii) Institutional and legal framework

34. The Ministry of Planning and Development is responsible for investment in Mozambique.56 The Investment Promotion Centre (Centro de Promoção de Investimentos, CPI), established in 1993, remains responsible for dealing with all investment procedures and for promoting Mozambique as a destination.57

35. The CPI processes applications to register foreign and national investment projects58, and provides services to companies wishing to establish in Mozambique. The CPI charges investors for its services and is financially autonomous. It requires 20 working days for processing applications and delivering permits, and more time is required when projects need a title for the use of land from the Ministry of Agriculture. The CPI also grants the approval required for companies to have access

52 Regulations - PRC Customs Administrative Measures Concerning Origin of Import Goods Enjoying

Special Preferential Tariff Treatment (10 July 2006). Viewed at: http://gbcode.hktdc.com/gb/www.hktdc.com/ report/reg/reg_060702.htm [10 June 2008].

53 Law No. 3/93, of 24 June 1993 and its regulations contained in Decree No. 14/93 of 21 July 1993, as amended by Decree No. 36/95 of 8 August 1995.

54 Decree No. 39/2003 of 26 November 2003; and Decree No. 49/2004 of 17 November 2007. 55 World Bank (2008). 56 Decree No. 14/93 of 21 July 1993. 57 CPI online information. Viewed at: http://www.cpi.co.mz [28 April 2008]. 58 The proposal must contain: a request by the investors for authorization; particulars and curriculum

vitae of all investors or, when the investor is a company, the relevant financial statements; a description of technical, commercial, and financial viability, and details of management, human resources structure, implementation schedule, and operating methods of the implementing company; minutes of Articles of Association of the project implementing company. See Globe Africa online information, "Mozambique Investment Policy". Viewed at: http://www.globeafrica.com/Mozamb/mozamb2.htm [28 April 2008].


to the benefits granted under the Fiscal Benefits Code. It appears, however, that investors consider the procedure too cumbersome and costly.59

36. The Investment Code continues to provide standard protection to investors: protection of property rights, and compensation for expropriation; the remittance abroad of funds earned from investment activities; access to the Code of Fiscal Benefits (section (iii)); and dispute settlement. 60 Both national and foreign direct investment are subject to registration and prior authorization to enjoy the guarantees granted under the Code. Mozambique has minimum investment thresholds of US$5,000 for national investment and US$50,000 for foreign investment. In addition, the Investment Code provides for private sector participation, at the Government’s discretion, in certain activities reserved to the public sector (production of electricity; supply of water in urban centres; operation of postal services and telecommunications; development and operation of national parks; and production, distribution, and trade in arms and munitions).

37. Foreign investors may seek to resolve disputes with the Government through the domestic judicial system or, in the event of failure, refer the dispute by common agreement to arbitration under: (a) the International Centre for Settlement of Investment Disputes (ICSID), or the International Centre for the Settlement of Investment Disputes between States and Nationals of other States; (b) the ICSID Additional Facility (1978); or (c) the International Chamber of Commerce. Mozambique is a member of the Multilateral Investment Guarantee Agency (MIGA), which offers investors guarantees against non-commercial risks.61 The Centre for Arbitration, Mediation and Conciliation (CAMC), created in 2002, provides dispute resolution services on commercial matters to individuals.62

38. A new Commercial Code, governing the establishment of companies, appears to have improved the legal environment for investment. The Code stipulates modern corporate governance rules. It also modernized the business registration process by introducing an electronic format, eliminated the provisional registration, and made notaries optional. Hence, company registration has been reduced by almost three months.63 The Code allows for companies to take two forms: LDA (Sociedade por quotas) and SARL (Sociedade Anonima).64 A company may start operating once its Articles of Association have been published in the Official Gazette, it has been registered in the Commercial Register and with the local tax authorities, and it has been issued with an operating licence. All companies or persons wishing to undertake an industrial or commercial activity require a licence from the Ministry of Commerce65, which also licenses foreign business representation and foreign trade operators (Chapter III(2)(i)), subject to the payment of fees.66 A simplified licence has been available since March 2008.67 In addition, one-stop shops were established in 2007 to complete the requirements for establishing a business at the provincial level.

59 FIAS (2006). 60 Law No. 3/93 of 24 June 1993 and its regulations contained in Decree No. 14/93 of 21 July 1993, as

amended by Decree No. 36/95 of 8 August 1995. 61 Seven projects have benefited from MIGA guarantees. Viewed at: http://www.miga.org/

projects/index_sv.cfm?srch=s&stid=1517&hctry=154c&hcountrycode=MZ&dispset=10&srow=1&erow=10 [23 April 2008].

62 Law No. 11/99 of 8 July 1999. 63 World Bank (2008). 64 To incorporate a company (LDA or SARL) the following documents are required: a certificate

confirming that no other company with a similar name already exists; proof that the minimum share capital specified has been paid up; the company's Articles of Association; and identification of shareholders.

65 Decree No. 39/2003 of 26 November 2003. 66 Decree No. 49/2004 of 17 November 2004. Fees are set out in Ministerial Diploma No. 89/2005 of

7 March 2005. 67 Decree No. 2/2008 of 12 March 2008.


39. Sector-specific licences may also be required. For example, a licence issued by the Ministry of Tourism is required to operate in the tourism sector (Chapter IV). According to the World Bank, Mozambique ranks 144th in the world (out of 178 countries in 2009) for ease of starting a business 68, thus the FIAS has recommended that licensing should be established for all businesses that do not pose any significant risk to safety, health, and the environment.69

40. A new Labour Law was adopted in 200770, to address what was considered as a major bottleneck for potential investors.71 The principal changes concern: increased flexibility for firms in hiring, firing, and employing workers; a reduction in payments to be made in the event of labour redundancies, and a shorter notice period (from 90 to 30 days); and institutional changes in the conflict resolution system of labour relations. However, the new Labour Law continues to restrict the hiring of foreign staff, providing for maximum quotas according to the number of employees72, unless the investment project is granted an exemption, for example where the necessary skills are unavailable domestically. The minimum wage is adjusted annually by recommendation of the Labour Consultative Council, the tripartite negotiating forum between the government, unions, and employers' associations.73

41. With respect to land, the Mozambican Constitution (Article 109) reserves ownership to the State alone. Domestic and foreign persons may obtain non-transferable usage rights under the Land Law adopted in 1997.74 Land access criteria are more restrictive for foreigners than for Mozambican nationals: for foreigners, natural persons may obtain by access upon minimum residency in Mozambique of five years, and legal persons must be established or registered as a company in Mozambique.75 Application for land use must be made to the Cadastre, and may be granted on a provisional basis for two years to foreigners and five years to nationals. Following an inspection to determine whether the land is being used for the purpose specified, a definitive authorization is granted for 50 years (renewable for 50 years). These inspections add to the cost and difficulty of doing business in Mozambique.

42. Foreign direct investment is subject to registration with the Bank of Mozambique, and prior authorization is required for repatriation of profits, dividends or capital, and to service foreign loans in excess of US$5,000.76

(iii) Investment incentives77

43. Registered and authorized national and foreign investors may seek relief from the standard taxation and customs regime by obtaining certification for the Code of Fiscal Benefits. The Code,

68 World Bank (2008). 69 FIAS (2006). 70 Law No. 23/2007 1 of August 2007. 71 UNCTAD (2002); and World Bank (2006). 72 Foreign staff may comprise: (a) 5% of the total number of employees, in large enterprises (with

more than 100 employees); (b) 8% of the total number of employees, in medium-sized enterprises (between 11 and 100 employees); (c) 10% of the total number of employees, in small enterprises (10 or fewer employees). Hiring of foreign staff in excess of these quotas must be approved by the Ministry of Labour, and foreign staff may only be employed if there are no Mozambicans qualified for the job, or if there are not enough with the required skills.

73 Ministerial Diploma No. 123/2006 of 21 June 2006. 74 Law No. 19/97 of 1 October 1997. 75 Article 11, Law No. 19/97 of 1 October 1997. 76 Banco de Moçambique. Viewed at: http://www.sadcbankers.org/SADC/SADC.nsf/LADV/

970E66A86150B3D54225726E00492F2D/$File/Mozambique.pdf [21 April 2008]. 77 Decree No. 16/2002 of 27 June 2002.


adopted in 2002, harmonized the plethora of fiscal benefit regimes, although it applies only to new investments, excluding projects in mining and petroleum (Chapter IV(3)). The sugar sector continues to have its own incentive regime, including exemptions from customs duties and other taxes collected at the border.78 Separate regulations apply to enterprises establishing under the Industrial Free Zones regime (Chapter III(3)(vi)), which includes Mozambique’s megaprojects, such as MOZAL for aluminium and SASOL for gas pipeline transport. The authorities are examining the operation of investment incentives and may revise the Code of Fiscal Benefits and/or the Industrial Free Zones (IFZs) regime.

44. The Code of Fiscal Benefits offers national and foreign investors the same set of generic incentives, including: customs duty exemptions; tax credits; and accelerated depreciation for new immovable assets (Table II.2). Additional benefits are available to investments in agriculture, tourism, and large-scale projects (at least US$500 million), and subject to the creation of employment, in Rapid Development Zones (ZRDs), and IFZs (Chapter III(3)(vi)).

Table II.2 Investment incentivesa

Sector Type of incentive Available to all approved investment projects:

Exemption from payment of import duties on equipment included in class “K” of the Customs Tariff Schedule, but only when the goods to be imported are either not produced within the territory of Mozambique or, if produced, do not satisfy the specific purpose or operational characteristics required or inherent in the nature of the project and particular activity to be developed and carried out; Investment tax credit equal to 5% of the total investment realized (exceptions apply, e.g. passenger vehicles), for five years; Tax credit for the professional training of Mozambican workers, up to a maximum of 5% of taxable income, for the first five years of operation; Accelerated depreciation for new immovable assets; Tax deductible expenditure, 100% in Maputo and 150% in the provinces, for the construction and rehabilitation of roads, railways, airports, mail delivery, telecommunications, water supply, electric energy, schools, hospitals, and other works, for 10 years; Exemption from stamp tax for the alteration of the share capital and the articles of association, for the first five years of operation; Reduction of 50% in the rate of the real property transfer tax (SISA) for acquisition of immovable property used in industry, agri-industry and hotel industry, provided the property is acquired within the first three years from the date of authorization of the investment

Additional benefits to approved investment projects in: Advanced technology Tax credit for investment in advanced technology equal to 15% of total income, for five fiscal years;

Tax credit for the professional training of Mozambican workers, up to a maximum of 10% of taxable income, for the first five years of operation

Agriculture Until 2012, an 80% reduction in the tax rate applicable to profits from agricultural ventures Hotels and tourism Investment tax credit equal to 8% of the total investment realized, for five tax years (including passenger

vehicles) Large-scale investment projects (> US$500 million or investments in public domain infrastructure carried out under the regime of a concession)b

Generally available benefits for 10 years, plus: Investment tax credit of 5-10% of the total investment realized (with exceptions, e.g. passenger vehicles), rising to 10-15% if located in Gaza, Sofala, Manica, Tete, Zambézia and Nampula Provinces, and to 15-30% if located in Cabo Delgado, Inhambane and Niassa Province

Table II.2 (cont'd)

78 Decree No. 74/99, 12 October 1999.


Sector Type of incentive

Rapid Development Zonesc Investment tax credit of 20% of the total investment realized (with exceptions, e.g. passenger vehicles), for the first five years of operation; Exemption from the real property transfer tax (SISA) for acquisition of immovable property used in industry, agri-industry and hotel industry, provided the property is acquired within the first three years from the date the investment was authorized.

a Industrial Free Zones are separately regulated (Chapter III(3)(vi), as well as mining and petroleum (Chapter IV(3)). b Investments in agriculture, aquaculture, livestock agriculture and forestry; agro-industry; manufacturing; construction of railway,

road, port and airport infrastructure and related equipment; tourism activities. The project must create at least 500 jobs or induce the creation of at least 1,000 jobs within three years, and must contribute to the reduction of regional imbalances by choice of location. Large-scale investment project benefits cannot be cumulated with the additional benefits for approved investment projects in advanced technology, agriculture or in hotels and tourism.

c Zambezi Valley, Niassa Province, Nacala District, Moçambique Island and Ibo Island. Activities in agriculture, forestry, aquaculture, livestock raising, lumber production; game animal exploitation; water supply; electric energy generation, transmission, and distribution; telecommunications; construction of public utility infrastructure; housing; agricultural infrastructure; hotels; tourism-related infrastructure; infrastructure for commerce; industry; cargo and passenger transport; education; health.

Source: WTO Secretariat, based on the English translation of Decree No. 16/2002 of 27 June 2002. Viewed at: http:// www.mozbusiness.gov.mz/download.php?view.6 [16 June 2008].

(iv) Bilateral agreements on investment promotion and protection

45. Mozambique has concluded 22 agreements for the reciprocal promotion and protection of investments, which have been ratified by the Council of Ministers and are in force.79 Mozambique has also concluded double taxation treaties with Portugal (1991), Mauritius (1998), Italy (1999), and the United Arab Emirates (2004). The Cotonou ACP-EC Agreement provides for the protection of European investments in the ACP countries (Articles 260, 261 and 262); investment should in principle also be covered by the Economic Partnership Agreement (section (3)(ii)(e)).

79 These agreements are with: Zimbabwe (1990); Portugal (1995); Mauritius (1997); South Africa

(1997); United States (1998); Italy (1998); Algeria (1998); Egypt (1998); Indonesia (1999); China (2001); Sweden (2001); Cuba (2001); Netherlands (2001); Germany (2002); Denmark (2002); France (2002); Switzerland (2002); United Kingdom (2004); Finland (2004); Belgium (2006); Viet Nam (2007); and the U.S. Overseas Private Investment Corporation (1999).


ANNEX II.1: TRADE-RELATED TECHNICAL ASSISTANCE

1. Mozambique has enjoyed support from the international community for the implementation of its Action Plan for the Reduction of Absolute Poverty (PARPA), in the form of direct budgetary assistance, and bilateral and multilateral programmes.1 Under PARPA II, adopted in 2006, the Government is committed to attaining rapid economic growth and further reducing poverty. In the context of its second Trade Policy Review (TPR), Mozambique hopes to mobilize trade-related technical assistance to improve its capacity to participate in the multilateral trading system, thus contributing to its economic development.

2. Since its first TPR, Mozambique has benefited from a large number of activities to support the development of its international trade, undertaken by the WTO and other international organizations such as the UNCTAD, ITC, UNDP, the World Bank, and the IMF. Mozambique participates in the Integrated Framework (IF)2, and the Joint Integrated Technical Assistance Programme (JITAP II)3, joint initiatives of the WTO and partner international organizations. In addition, Mozambican officials participated in 176 seminars, workshops, courses, missions, and other WTO activities during the review period, and further activities are to be undertaken. Mozambique has also benefited from the establishment of a reference centre on the premises of the Ministry of Industry and Commerce.

3. To further support its participation in the multilateral trading system, Mozambique continues to require trade-related technical assistance from the WTO, including on: the implementation of trade-related agreements; participation in the regular activities of the WTO; capacity-building for participation in the Doha Round; formulation of trade policy; supply-side constraints; and the integration of trade and development policies.

(1) IMPLEMENTATION OF AGREEMENTS, TRAINING, AND POLICY FORMULATION

4. Since its first TPR, Mozambique has made some progress on the implementation of WTO rules, notably with respect to customs valuation and trade-related aspects of intellectual property rights (TRIPS). Customs officials and economic operators, however, continue to encounter difficulties with certain implementation aspects of the Agreement on Customs Valuation; technical assistance in this area is requested. Mozambique does not have a regulatory framework for the application of anti-dumping or countervailing measures; the authorities consider that capacity- building in this area could help to ensure that WTO-consistent policy options are available if the need arises. Other outstanding implementation issues of concern to Mozambique relate to the application of WTO rules on sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT). Mozambique is also intent upon strengthening its national capacity to comply with the SPS and TBT measures applied by trading partners, particularly requirements for its exports of agricultural products, mainly plants, fresh fruits and vegetables, meat, and other food products. In all areas, notifications remain a persistent difficulty, as Mozambique has made only one (on implementation of the Agreement on Customs Valuation) since its first TPR; this is considered to be a priority area by the authorities.

5. Mozambique requires technical assistance, including capacity-building, to align certain domestic laws with WTO rules. The highest tariff rates have been reduced. Estimates of the fiscal impact of this reform would help identify other alternatives to customs revenue so that tariff rates can be further reduced.

1 IMF (2007b). 2 Integrated framework online information. Viewed at: http://www.integratedframework.org. 3 JITAP online information. Viewed at: http://www.jitap.org.


6. Mozambique also requires technical assistance to improve its ability to participate in the Doha Round. Mozambique shares many of the negotiating priorities of LDCs, notably the removal of the subsidies to key exports, such as sugar or cotton, or with respect to food security. Furthermore, the liberalization of trade in goods and services undertaken by Mozambique since its first TPR has yet to be reflected in its schedules of goods and services commitments. The latter, dating from the Uruguay Round, are very limited in scope, thus diminishing+ the benefits that Mozambique might realize from its binding commitments, particularly attracting investors to priority activities such as tourism or transportation. In the context of the greater participation foreseen in PARPA II, training would be useful for the private sector, academics, parliamentarians and the media, to explain the benefits of the multilateral trading system. Mozambique also wishes to build capacity in order to participate effectively in the dispute settlement mechanism. Given that PARPA II foresees wider participation of the civil society in policy-making, training for the private sector, academics, parliamentarians, and the media, would be useful. This would help to increase awareness of the obligations and the benefits of participation of the multilateral trading system.

(2) SUPPLY-SIDE CONSTRAINTS

7. Supply-side constraints are among the main factors limiting the expansion of Mozambique’s trade in goods and services. The authorities have given attention to the development of a multimodal transport infrastructure, through the rehabilitation of ports, roads, and railroads, and its integration with that of major trading partners, in particular South Africa and the land-locked countries to the west, for which its ports are a vital gateway. Substantial investments have been made, involving technology transfer and training for Mozambican workers. Technical assistance could help further strengthen those efforts. In addition, to improve the operation of the supply chain, operational support for customs administration (extension of computerization, reduction of delays, processing of VAT refunds) is also desirable.

8. Of particular concern for Mozambique’s PARPA II objectives with respect to poverty reduction is raising the productivity of the agriculture sector, improving the integration of rural and urban markets, increasing value-added through processing, and expanding the range of high-value exports that meet the standards of developed destination markets. Certain agricultural exports already meet such standards, notably some fish products to the EC, as well as horticultural products. Technical assistance will continue to play a central role in enlarging the basket of Mozambican exports of agricultural products. To increase production, Mozambique relies on imported fertilizers, seeds, materials, and equipment. Tariffs and taxes play an important role in increasing the costs on these items, on top of the substantial costs of shipping, and internal transportation and handling costs. Government support for the sector is focussed on extension services, but these have inadequate reach; technical assistance could help alleviate this shortcoming. The extension of microfinance in rural areas would support the shift in agricultural activity from subsistence to commercial.

9. Mozambican enterprises, including those established in export processing zones, experience difficulties of access to credit and inputs, including electricity, water, and telecommunications, and also suffer the adverse effects of poor governance. Skilled labour is also in shortage. The efforts undertaken by the State remain insufficient. Funding for economic activities by the banking system does not appear to be on a sufficiently large scale to provide support for small and medium-sized enterprises planning long-term (high-risk) investments. Improved supply of, inter alia, transportation and telecommunications services, and of energy (electricity in particular) is also desirable.


(3) INTEGRATION OF TRADE IN DEVELOPMENT POLICY

10. As PARPA II progresses, Mozambique’s ability to integrate in the international market will become increasingly important to its development, both in terms of securing vital imports of food and inputs, and access for its exports. PARPA II specifically recognizes the need to adapt Mozambique’s trade policy strategy to its development policy. For example, protection applied in order to expand production of sugar or local crops is to be balanced against food security goals, as prices of basic foods have an impact on poverty. In addition to the results of the IF and JITAP II, the outcome of Mozambique’s second TPR could be used to better coordinate its objective of integration at the regional and multilateral levels.


III. TRADE POLICIES AND PRACTICES BY MEASURE

(1) INTRODUCTION

1. Since its first Trade Policy Review (TPR) in 2001, Mozambique has continued liberalizing its trade regime. Its tariff was reduced in 2002 and again in 2007, with maximum rates lowered from 30% to 20%. This reduction increased the already substantial gap between applied and bound MFN tariffs. All Mozambican tariff rates remain ad valorem. In 2008, the simple average MFN tariff was 10.2%, down from 13.8% in 2001; these figures exclude the surtaxes on sugar, cement, and galvanized steel products (also in place in 2001). At the customs border, a 17% VAT is levied, along with excise taxes on alcohol, tobacco, luxury products, road motor vehicles, and boats. Certain necessities (food, soap, sugar, cooking oil) are exempt from VAT. Investors typically obtain customs duty and tax exemptions on goods imported as part of existing investment incentives (Chapter II(4)(iii)).

2. Mozambique implemented the WTO Customs Valuation Agreement in 2002. Pre-declaration and pre-payment of customs duties and taxes were eliminated in 2003. Pre-shipment inspection applies to a "positive list" of products, which is being progressively narrowed. The full operation of the customs service was returned to domestic control in 2005, proper management of customs services remains a challenge. Computerization is incipient. The import and export licensing regime appears largely unchanged since 2001. Import and export restrictions are in place to protect consumers, animal and plant health, as well as the environment. Exports taxes are still used to encourage processing; for instance, exports of raw cashew nuts are subject to an 18% tax. Mozambique does not have legislation on contingency trade measures.

3. Mozambique’s standardization regime and its accreditation and certification procedures have not been modified since its first TPR in 2001. In general Mozambique adopts international standards and technical regulations and adapts them only when it is deemed necessary for the domestic market. Imports to Mozambique are subject to sanitary and phytosanitary controls at the border, which the authorities claim are in accordance with international recommendations.

4. Mozambique has largely liberalized goods and services prices, with the exception of the minimum prices for sugar and for petroleum products, which are adjusted on a monthly basis to follow world market prices. In 2007, Mozambique issued a general policy towards competition; nevertheless, the domestic market continues to be hampered by anti-competitive practices, and a regulatory framework is still to be adopted. The supply of key inputs such as fixed-line telephony, electricity, and water, continue to be the preserve of state enterprises, contributing to Mozambique’s supply-side constraints. The State also has a strong shareholding in numerous enterprises. The new government procurement regime, in place since 2005, is improving the transparency of contracts, and their award procedures.

5. Mozambique’s legislation on protection of industrial property rights, dating from 1999, was revised in 2006, and legislation on copyright was enacted in 2001. These regimes are harmonized with certain provisions of the WTO TRIPS Agreement. In 2004, Mozambique issued a compulsory licence for local manufacture of anti-retroviral drugs, but the manufacturing facility has not been established. Procedures to obtain industrial property rights have been streamlined. Efforts to ensure respect for intellectual property rights, and in particular to combat piracy and counterfeiting, are continuing. In 2006, Mozambique introduced fines for the first time, to deter IPR infringement, including through counterfeiting, although no cases of infringement have yet been finalized.


(2) MEASURES DIRECTLY AFFECTING IMPORTS

(i) Registration

6. Importers/exporters in Mozambique must be licensed by the Ministry of Commerce.1 Importers/exporters may become wholesalers or retailers (but not both) after obtaining a "licence to carry out a productive activity" from the Ministry of Industry and Trade. Any economic operators (including importers) that wish to become distributors in urban areas are required to specialize in a selected activity (chosen from among 21 classes of products); however, specialization is not required in rural areas, where trading establishments typically supply a wide range of goods to customers.2 Licence applications are to be accompanied by the appropriate documents indicating proof of identity (for natural persons) or enrolment in the companies register (for legal persons)3; tax registration; the contract, title or lease to the premises to be used for the commercial activity; and a drawing of these premises. Mozambican traders are issued with a numbered importer/exporter card.

7. Foreign persons with the appropriate visa or residency permit, and foreign businesses established in Mozambique (as a branch, subsidiary or agency), may also become traders. Requirements for foreign establishments are more onerous than for Mozambican applicants, as minimum capital requirements are higher, and the documentation required is more extensive (Chapter II(4)). A numbered "foreign trade operator’s identification card" is issued, specifying whether the activity is that of an importer or an exporter.

8. Additional registration requirements apply to importers of pesticides and medicinal products (section (v)).

(ii) Customs procedures, and valuation

9. Mozambique is a member of the World Customs Organization (WCO), and its customs services make available all relevant texts, in principle, online.4 Mozambique adopted the WTO Customs Valuation Agreement in 20025, and notified its customs legislation to the WTO in 2005.6 In July 2006, the State ended the contract with Crown Agents to manage Customs operations, which are under the Revenue Authority. The customs authorities, however, continue to have difficulties in effectively implementing the WTO Agreement, and Mozambique has requested technical assistance in order to build national capacity in this area (Annex II.1). Customs cooperates with neighbouring countries to ensure recourse to customs procedures and enforce prohibitions on smuggling. Corruption remains a problem for users of customs services.7

10. Mozambique's customs regimes include: temporary importation; temporary exportation; re-importation; re-exportation; customs transit; storage; industrial free zones (section 3(vi)); and customs warehousing.8 Certain products are excluded from entry under some of these regimes.9

1 Decree No. 49/2004 of 17 November 2004. 2 This means that importers cannot be both wholesalers and retailers in urban areas. 3 The Commercial Code is contained in Decree No. 2/2005 of 27 December 2005. 4 Mozambique Customs online information. Viewed at: http://www.alfandegas.gov.mz/legisla.htm (in

Portuguese only), [10 July 2008]. 5 Decree No. 38/2002 of 11 December 2002. 6 WTO document G/VAL/N/1/MOZ/1 of 4 July 2005. 7 CIRESP (2006). 8 Decree No. 30/2002 of 2 December 2002. 9 Tables I-IX of Decree No. 30/2002 of 2 December 2002.


11. A customs clearing agent is required for all commercial imports and exports; access is open to qualified Mozambican persons. Customs clearance procedures require a single document (Documento Unico, DU), also available in abbreviated or simplified forms10; a requirement to "pre-declare" goods and pay 15% of the applicable customs duties and taxes, in place since 1998, was eliminated in 2003 11; and a stamp tax of Mt 50, which was in place in 2004, was removed in 2005.12 The DU must be accompanied by: the original invoice; transport documents; insurance certificate; phytosanitary certificate for products of plant origin; sanitary certificate for products of animal origin; certificate of origin in case of access to a preferential regime; or any other documents required to support a request for exemption from customs duties or taxes.13

12. Two further simplified customs clearance procedures are available. For goods not subject to PSI nor requiring a sanitary or phytosanitary certificate (section (vii) below), and whose f.o.b. value is at or below Mt 37,000 (approximately US$1,500), the importer may request access to the simplified procedure, requiring a Documento Unico Abreviado (DUA). A simplified procedure requiring a simplified document (Documento Simplificado, DS) is available for visitors and returning residents with consignments whose f.o.b. value is at or below Mt 12,000 (approximately US$500). Small consignments of goods intended for personal use may be exempt from customs clearance. The DUA and the DS must be accompanied by the same documents required for the DU. Importers may use an advance declaration to expedite customs procedures, so that shipments are cleared more rapidly upon arrival.

13. Certain goods are subject to mandatory pre-shipment inspection (PSI).14 First introduced in 1998, PSI is provided exclusively by Intertek, under a contract expiring in 2009. The contract covers PSI, training, and support to seven customs offices in Mozambique. Since 2003, PSI applies to a "positive list" of products, which the Government is reducing progressively. In 2008, the following goods were subject to PSI: frozen poultry; flour (bags over 20 kg); cooking oil and raw cooking oil (containers over 10 litres); sugar; cement (bags over 100 kg); chemical products (chapter 28 and 29); medicinal products (except those destined for personal use); soaps; matches and lighters; new and used tyres (over five units); silk, cotton, and synthetic fabrics; used clothing (consignments over 45 kg); air conditioning, fridges, and freezers; batteries; and used vehicles.15 Intertek’s guidelines, which are available on the Internet, specify that the exporter of a product subject to PSI must contact the local office, which will send a request for information (RFI) letter, containing the information required for the Pre-Advice Form (PAF), which must be supplied to Mozambican Customs for all imports subject to inspection.16 Upon satisfactory inspection, which takes place in the country of origin, Intertek issues a Certified Simple Document (Documento Unico Certificado, DUC) to the importer; it requires a clean invoice, including all particulars required to determine the customs value.17

10 Ministerial Diploma No. 262/2004 of 22 December 2004. 11 Ministerial Diploma No. 206/98 of 25 November 1998 introduced the pre-declaration requirement to

replace import licensing requirements for all goods. Mozambique News Agency, AIM Report No. 247, 3 February 2003. Viewed at: http://www.poptel.org.uk/mozambique-news/newsletter/aim247.html#story10 [2 May 2008].

12 Decree No. 6/2004 of 1 April 2004, modified by Decree No. 38/2005 of 1 April 2005. 13 The CPI approves investment projects and issues documentation for the application of duty

exemptions (Chapter II). 14 Ministerial Diploma No. 19/2003 of 19 February 2003. 15 Order of service No. 43/GD/DGA/2006 of 1 July 2006. 16 Exporters to Mozambique have access to Intertek's guidelines on Intertek’s web site. Online

information. Viewed at: www.intertek-fts.com/programmes/mozambique/62765 [2 May 2008]. 17 Intertek’s guidelines stipulate a clean final invoice, with: invoice number and date of issuance;

names of the importer and exporter, as per the pro-forma invoice (and letter of credit, if applicable); detailed


14. Once a DU is officially lodged, Customs may inspect some or all of the goods declared (using risk-based methods of assessment). Tax exempt transactions (e.g. for approved investment projects) are subject to a specific fee of Mt 50 for customs services rendered. The time required to complete customs procedures depends on the regime selected and the customs post; Maputo handles about 80% of the DUs submitted, and reports that about 40% are cleared within 48 hours. This is a significant improvement from the 18 days estimated in 2000 by the IFC’s Foreign Investment Advisory Service. However, according to World Bank indicators, Mozambique ranks 140th in the world (out of 178 countries) for ease of trading across borders; 10 documents and on average 32 days are required to clear a typical import operation, and the average cost of a container is US$1,475.18

15. A pilot programme for computerization of customs procedures is under way. The authorities intend to introduce an online facility to allow commercial agents to submit declarations and an e-taxation system for the payment of customs duties and taxes. Complaints regarding the tariff classification of goods are handled through the Taxation Council, on which clearing agents are represented, and which reports to the Revenue Authority. Disputes regarding customs valuation are handled by the Customs Tribunal, but cases are rare.

(iii) Rules of origin

16. Mozambique does not use any national rules of origin for non-preferential purposes. It uses rules of origin to establish originating status for imports from preferential trade agreement including SADC members (Chapter II(3)).

17. Annex I to the SADC Trade Protocol on rules of origin, sets out the basic requirements for goods to be regarded as "originating": the product must have been wholly obtained in one of the Parties19; or the non-originating materials incorporated in the product must have undergone "sufficient working or processing" in accordance with the conditions set out in Appendix I; or the value of all non-originating materials must not exceed 10% of the ex-works price of the good (tolerance rule). There is no regime-wide rule of origin but Appendix I lists the specific criteria (mostly with respect to HS tariff headings (at various levels)) that non-originating materials must meet for a final good to acquire originating status.20 SADC has developed its own model certificate of origin.

18. According to Annexes II and III of the Agreement between Mozambique and Malawi, the basic requirements for goods to be regarded as "originating" are that the product must have been wholly obtained in one of the Parties; or the value-added resulting from the production process is at least 25% of the ex-factory cost of the goods. Similar requirements are set out in Annexes I, III, and IV of the Agreement between Mozambique and Zimbabwe.

(iv) Customs duties

19. Goods imported into Mozambique are subject to duties and taxes applied at the border. As of 2003, Mozambique’s major tariff liberalization had placed all lines at rates of 2.5%, 5%, 7.5%, 20%,

quantity and description of goods; all unit prices and extensions; total price and applicable incoterms (e.g. f.o.b.); the gross and net weights of the consignment; any shipping marks.

18 World Bank (2008). 19 Article 4 specifies the type of goods that can be regarded as being wholly produced in the member

states. It gives a list of the products in this category and establishes the criteria that a vessel must satisfy for it to be regarded as forming part of the territory of a member state.

20 For further details, see WTO document WT/REG176/4, 12 March 2007.


or 25%.21 The tariff remains largely unchanged in 2008, except for the reduction to 20% of the single tariff line that bore a 25% tariff in 2003.22 The taxable base for the tariff is the c.i.f. customs value. In addition, goods and services may be subject to: VAT at 17%; an excise tax (specific consumption tax), levied on tobacco products, alcoholic beverages, and luxury products; and a surtax, levied only on sugar, cement, and galvanized steel, steel sheets, and tubes.

20. In 2007, customs revenue amounted to approximately Mt 12.7 billion, about three times the 2001 total (Table III.1). In 2007, customs revenue from imports was mainly generated by: the tariff (30%); VAT (52%); and the specific consumption tax/excise tax (6%). Customs duties account for a relatively smaller contribution to revenues than VAT.

Table III.1 Itemized customs revenue from imports, 2001-07 (Mt million)

2001 2002 2003 2004 2005 2006 2007

Customs tariff 1,477 1,851 2,229 2,223 2,816 3,286 3,835 VAT 2,034 2,621 3,037 3,340 4,158 5,687 6,698 Excise duty 251 317 407 485 569 696 735 Customs user fee .. 12 12 17 21 8 9 Other 21 63 22 73 .. 1,175 1,401 Total 3,782 4,863 5,708 6,137 7,565 10,854 12,677

.. Not available. Source: Information provided by the Mozambican authorities.

(a) Applied MFN tariff

21. Mozambique's 2008 applied tariff comprises 5,203 eight-digit lines of the 2007 Harmonized System (HS). As was the case at the time of the previous Review, all the rates are ad valorem. For 2008, the simple applied average MFN rate is 10.1% (Table III.2), down from 13.8% in 2001; this is as a result of the 2002 tariff reductions (effective as of 2003). However, this reduction has not greatly altered the structure of the tariff itself. Protection is higher on agricultural products (13.5%) than on non-agricultural products (9.5%) (WTO definitions, excluding petroleum products). By HS Chapter, the highest average tariffs continue to be on basic food products such as meat, fish, fruits, vegetables and products thereof, as well as beverages and clothing (Table AIII.1). Furthermore, as noted above, sugar, cement, and certain steel products are subject to ad valorem surtaxes (section (b) below), which are not taken into account in the figures reported in this section.

22. The 2008 applied tariff, comprises five rates: zero, 2.5%, 5%, 7.5%, or 20% (Chart III.1); two thirds of lines are assessed at 7.5% or less, and one third at 20%. In contrast, at the time of Mozambique's Review in 2001, about 35% of lines were at 30%; the reduction of the highest tariff rate (from 30% to 20%) applies to food, beverages, and clothing may contribute to poverty alleviation, as such products typically account for an important share of consumer expenditure, especially of the poor in urban areas. Mozambique’s 20% tariff on these goods, however, still adds significantly to the prices of imported necessities and basic goods.

21 Decree No. 36/2002 of 11 December 2002 and Decree No. 39/2002 of 26 December 2002. 22 Law No. 03/07 of 7 February 2007. The rate of 25% applied to HS 8205.51.00 reduced to 20%.


Table III.2 Structure of MFN tariffs in Mozambique, 2008 (Per cent)

2008 U.R.f

1. Bound tariff lines (% of all tariff lines) 14.2 14.2 2. Duty-free tariff lines (% of all tariff lines) 2.9 0.0 3. Non-ad valorem tariffs (% of all tariff lines) 0.0 0.0 4. Tariff quotas (% of all tariff lines) 0.0 0.0 5. Non-ad valorem tariffs with no AVEs (% of all tariff lines) 0.0 0.0 6. Simple average tariff rate 10.1 97.6 Agricultural products (WTO definition)a 13.5 100.0 Non-agricultural products (WTO definition)b 9.5 6.6 Agriculture, hunting, forestry and fishing (ISIC 1) 12.4 100.0 Mining and quarrying (ISIC 2) 3.7 n.a Manufacturing (ISIC 3) 10.0 96.4 7 Domestic tariff "spikes" (% of all tariff lines)c 0.0 0.0 8. International tariff "peaks" (% of all tariff lines)d 33.4 97.4 9. Overall standard deviation of applied rates 7.3 14.8 10. "Nuisance" applied rates (% of all tariff lines)e 0.0 0.0

a WTO Agreement on Agriculture definitions. b Excluding petroleum. c Domestic tariff spikes are defined as those exceeding three times the overall simple average applied rate (indicator 6). d International tariff peaks are defined as those exceeding 15%. e Nuisance rates are those greater than zero, but less than or equal to 2%. f Based on the 2008 tariff schedule; calculations are based on 741 bound tariff lines.

n.a. Not applicable.

Source: WTO Secretariat calculations, based on data provided by the Mozambican authorities.


23. The coefficient of variation of 0.7 indicates some dispersion of tariff rates and hence different levels of protection in the economy using ISIC (Rev. 2), agriculture remains the most heavily protected sector (average tariff of 12.4%), followed by manufacturing (10.0%), and mining (3.7%) (Table III.3). By stage of processing, the tariff shows mixed escalation: it is negative from raw materials to semi-processed products (average protection of 10.1% and 7.5% respectively), and then positive from semi-processed to finished products (with an average level of protection of 11.6%) (Table III.3). A more detailed breakdown by activity reveals that escalation is evident in most industries, including textiles and clothing, wood products, chemicals, metal products (Chart III.2). However, the overall tariff structure closely reflects the prevailing pattern of escalation, in particular, in the food (including beverages and tobacco), and non-metallic mineral products and metal products, in which escalation is negative from the raw materials to semi-processed stage (Chart III.2). Such a tariff structure tends to discourage investment in the processing industries because the heavy taxation of imported inputs adds to production costs or reduces the competitiveness of products manufactured in Mozambique. Thus, the tariff structure may not be conducive to diversification of economic activity through manufacturing. It contributes to investor's arguments for duty and tax concessions, including under the Industrial Free Zone (IFZ) regime (Chapter II(4)).

Table III.3 Summary analysis of the MFN tariff, 2008

Applied 2008 rates

Analysis No. of lines Simple avg. tariff (%)

Range tariff (%)

Std-dev (%) CV

Imports 2006a

(US$ million)

Total 5,203 10.1 0-20 7.3 0.7 2,869.3 By WTO definitionb Agriculture 722 13.5 0-20 7.9 0.6 371.9 Live animals and products thereof 98 17.6 0-20 6.0 0.3 15.0 Dairy products 27 15.2 0-20 7.7 0.5 30.0 Coffee and tea, cocoa, sugar, etc. 125 15.1 0-20 6.5 0.4 34.9 Cut flowers and plants 33 5.7 2.5-20 6.9 1.2 0.6 Fruit and vegetables 160 18.8 2.5-20 4.1 0.2 19.4 Grains 22 7.5 2.5-20 7.9 1.1 179.5 Oil seeds, fats, oils, and their products 80 9.2 2.5-20 7.2 0.8 53.4 Beverages and spirits 47 18.1 7.5-20 4.5 0.2 12.6 Tobacco 9 14.2 2.5-20 8.8 0.6 18.1 Other agricultural products 121 5.0 0-20 5.0 1.0 8.3 Non-agriculture (excl. petroleum) 4,458 9.5 0-20 7.1 0.7 1,556.2 Fish and fishery products 129 19.3 0-20 3.2 0.2 31.8 Mineral products, precious stones, and precious metals

324 7.7 0-20 5.5 0.7 127.5

Metals 591 6.9 2.5-20 4.5 0.6 159.3 Chemicals and photographic supplies 865 5.1 0-20 5.7 1.1 181.3 Leather, rubber, footwear, and travel goods 167 11.3 0-20 7.1 0.6 47.4 Wood, pulp, paper, and furniture 259 9.8 0-20 6.6 0.7 101.0 Textiles and clothing 815 16.0 0-20 6.7 0.4 59.0 Transport equipment 142 7.8 0-20 5.8 0.7 303.6 Non-electric machinery 519 6.2 5-20 3.5 0.6 259.8 Electric machinery 256 8.9 2.5-20 5.2 0.6 136.7 Non-agricultural articles n.e.s. 391 12.8 0-20 6.9 0.5 148.8

By ISIC sectorc

Agriculture, hunting, forestry, and fishing 317 12.4 0-20 8.6 0.7 130.4 Mining 97 3.7 2.5-20 3.3 0.9 8.5 Manufacturing 4,788 10.0 0-20 7.2 0.7 2,082.4

Table III.3 (cont'd)


Applied 2008 rates

Analysis No. of lines Simple avg. tariff (%)

Range tariff (%)

Std-dev (%) CV

Imports 2006a

(US$ million)

By stage of processing Raw materials 658 10.1 0-20 8.3 0.8 298.8 Semi-processed products 1,706 7.5 0-20 6.4 0.9 281.4 Fully-processed products 2,839 11.6 0-20 7.1 0.6 1,724.9

a The total of imports is higher than the sum of sub-items, as imports to the valve of US$564.2million are not classified in the Harmonized System.

b Does not take into account 23 tariff lines on petroleum products. c International Standard Industrial Classification (Rev.2). Electricity, gas and water are excluded (1 tariff line).

Note: CV = coefficient of variation.

Source: WTO Secretariat estimates, based on data provided by the Mozambique authorities; 2006 import data from UNSD, Comtrade database.

(b) Import surtaxes

24. As at the time of Mozambique’s first TPR in 2001, three product categories are subject to import surtaxes: sugar; cement; and certain galvanized steel products.

Sugar

25. Raw and processed sugar are subject to import surtaxes, in addition to the basic duty of 7.5%, applied on the c.i.f. value of imports. The two surtaxes, which are variable, are set on a monthly


basis, and depend on the differences between the Mozambican minimum prices (US$385/tonne for raw sugar and US$450/tonne for processed sugar) and world market reference prices expressed in c.i.f. value.23 Regarding the operation of this regime, the authorities clarified that the Mozambican Association of Sugar Producers (APAMO) has exclusive distribution rights in Mozambique; this is aimed at preventing the minimum price policy from being undercut. As Mozambique does not have sufficient processing capacity, sugar companies export raw sugar to South Africa and import the processed sugar, paying the surtax on the value of the processed imports net of the value of raw sugar exports. Such imports are exempt from VAT. Industrial importers of sugar, such as beverage manufacturers, pay the surtax on the full value of their processed sugar imports.

26. The sugar surtaxes have been in place since 199924, when the authorities adopted a fixed domestic price system, implemented through a variable import tax system to absorb world market price fluctuations. The authorities claimed that given the distorted international sugar prices such a system provided greater certainty to the investors that rehabilitated the estates devastated in the Civil War (Chapter IV(2)(ii)).25 Inputs used in the domestic sugar industry, as well as sugar itself, are exempt of VAT (section (d) below).

Cement

27. The Mozambican Government imposed a surtax on imported cement (HS 2523.29.00) on 10 March 1997. The surtax is applied to the c.i.f. value of imports. It was reduced from 12.5% in 2001 to 10.5% in 2003, and remains at that level. This measure followed complaints that South African cement was being dumped on the Mozambican market. The surtax applies to cement imported from all origins.

Galvanized steel, steel sheets, and tubes

28. The Mozambican Government imposed a surtax on imports of certain galvanized steel products beginning on 25 August 1997. The measure followed complaints that steel sheets from Zimbabwe and South Africa were being dumped on the Mozambican market. The surtax is applied to the c.i.f. value of imports. In 2003, the surtaxes on galvanized steel (HS 7210.41.00), and on steel sheets and tubes (HS 7306.30.00 and HS 7306.60.00), were 20% and 10.5% respectively, and are still in place. The surtaxes apply to imports from all origins.

(c) Bindings

29. Mozambique's Uruguay Round concessions on goods are contained in Schedule CXIX. Under its Uruguay Round commitments, Mozambique bound tariffs on all agricultural products at a ceiling rate of 100%. Bindings on non-agricultural products are very limited; only 19 lines at the eight-digit level (HS 1996 nomenclature) were bound, at either 5% or 15%.26 In total, only 14.2% of Mozambique’s tariff lines are bound. "Other duties and charges" on all bound items are bound at 100%.

23 Ministerial Diploma No. 56/2001 of 30 March 2001 sets out the mechanism. For February 2008,

Order of Service No. 002/DGA/2008 of 28 January 2008 sets the applicable reference prices (per ton) for raw (US$347.18) and processed sugar (US$388.09), and the associated surtaxes on raw sugar (10%) and processed sugar (15%).

24 Decree No. 74/99 of 12 October 1999. 25 USAID (2004). 26 The 19 lines cover parts of nuclear reactors, boilers, machinery, and mechanical appliances, and are

all included in HS Chapter 84.


(d) Internal taxes

30. Mozambique has applied VAT at a standard rate of 17% since 1999. A new regime is in place for 2008.27 VAT is assessed on imported goods from all origins on the c.i.f. customs value. In principle, exports are zero-rated.

31. Under the 2008 VAT regime, some goods continue to be exempt from VAT including bicycles, bread, condoms, corn, corn flour, fresh and refrigerated tomatoes, garlic, jet fuel, lamp oil, onions, powdered milk for children, rice, flour, salt, smoked fish, and wheat.28 The sugar industry benefits from a VAT exemption, until 31 December 2010.29 It appears that an exemption also applies until 2010 to cooking oils and soaps, and imported inputs used by the related industry.

32. Specific internal taxes apply to petroleum products at the pump30, which are mainly imported; these were last adjusted in 2004 (Chapter IV(3)).31

33. Mozambique levies consumption taxes (referred to as excise taxes) on a wide range of products, including alcoholic beverages; cigars, cigarettes and tobacco; perfumes and cosmetic products; precious metals, gemstones, and jewellery; automobiles, motorcycles, motor boats, and sail boats.32 Excise taxes are assessed on the c.i.f. value plus applicable customs duties (but excluding VAT). In 2002, Mozambique reduced excise taxes on most products from 20-75% to 15-65%.33 The highest excise duty of 65% applies to cigars, cigarettes, and tobacco. Small quantities of imported tobacco products and alcoholic beverages are exempt. Manufactured tobacco intended for export is also exempt. Second-hand vehicles are subject to reduced excise taxes of 5%. Chibuku brand beer, made of sorghum and corn (HS 2206.00.10), is exempt from the 40% excise tax while other beer (HS 2206.00.90) is not; the authorities note that Chibuku is an energy drink, of lower alcoholic content than other beer.

(e) Tariff preferences

34. Mozambique grants preferences to eligible products originating in other SADC member countries, in accordance with the tariff liberalization schedule (Chapter II(3)(ii)(b)), and in Malawi and Zimbabwe (Chapter II(3)(ii)(e)).

(f) Duty and tax exemptions and concessions

35. Goods admitted duty free of customs include imports destined for use by diplomatic missions, international or charitable organizations; military goods destined for use by the armed forces; and goods imported in connection with removals and small consignments. Customs duty and/or tax exemption is also granted to goods imported in connection with approved investment projects (Chapter II(4)(iii)) and investments under the IFZ, as well as specific regimes agreed prior to 2003

27 Law No. 32/2007 of 31 December 2007. 28 Article 9:10 of Law No. 32/2007 of 31 December 2007. 29 Article 9:13 and Article 12:1(a) of Law No. 32/2007 of 31 December 2007. 30 Law No. 15/2002 of 26 June 2002. 31 Decree No. 56/2003 of 24 December 2003. 32 Decree No. 37/2002 of 11 December 2002. 33 Decree No. 52/98 of 29 September 1998, as modified by Decree No. 31/99 of 24 May 1999; and

Decree No. 37/2002 of 11 December 2002.


(e.g. sugar). Contracted migrant miners working in South Africa benefit from customs and VAT exemption for goods imported upon their periodic returns.34

(v) Prohibitions, quantitative restrictions, and licences

36. Mozambique’s regime on import prohibitions, quantitative restrictions, and licensing remains unchanged since its first TPR in 2001.35 Mozambique has not notified its licensing regime or any quantitative restrictions to the WTO. It prohibits, inter alia, the importation of pornographic materials, counterfeit products, pirated goods, and goods bearing false indications of origin. These prohibitions and other import restrictions are maintained on health and moral grounds and to comply with international conventions to which it is a party. Other specific import regulations apply to: playing cards; arms, explosives, and fireworks; used tyres (requiring an authorization from the Ministry of Transport); plant and vegetable matter (requiring a phytosanitary certificate); animals and products thereof (requiring a sanitary certificate); medicinal products (requiring authorization from either the health or veterinary services); precious metals (requiring the authorization of the Bank of Mozambique); currency and notes imported by the Bank of Mozambique; and narcotic drugs (requiring authorization from the health services). In 2007, Mozambique adopted a regime for genetically modified organisms (GMOs), which provides for such imports and products containing GMOs to be subject to prior approval.36

37. Mozambique also applies prohibitions and licences under the multilateral environmental agreements to which it is a party.37 Raw tobacco may only be imported by producers of tobacco products.38

38. Imports of medicinal products, which account for a substantial share of domestic consumption, may only be imported by registered importers. An import authorization is required for each consignment and is subject to 0.15% tax on the f.o.b. customs value. For this authorization to be granted, the products must figure in Mozambique’s Registry of Medicines. An application for marketing approval is made to the Council of Medicines (COMED) and, if it is successful, results in enrolment in the Registry of Medicines. In practice, however, the Ministry of Health may authorize the importation of unregistered products. In the case of an imported product, the application must be accompanied by a certificate issued by the Ministry of Health of the country of origin stating that the product is manufactured by an enterprise licensed to this end, and a marketing authorization from the country of origin, established according to WHO recommendations for pharmaceutical products to be traded internationally.39 Registration is valid for five years renewable. Pharmaceuticals and health products are distributed through the public health care system or through private dispensing units. A similar import regime applies to pesticides, which may only be imported by registered importers. The authorization to import is subject to a 0.15% tax on the f.o.b. customs value. The pesticides must

34 The authorities coordinate contracts of migrant miners for South African mines. Over half the salary

of a miner is paid to the Government for the benefit of miners' families in Mozambique, while a small portion of the wages are paid to the workers themselves who, in return, are allowed duty-free entry for items purchased in South Africa.

35 Tables I and III of Decree No. 30/2002 of 2 December 2002. 36 Decree No. 6/2007 of 25 April 2007. 37 UNEP (undated). 38 Article 22, Ministerial Diploma No. 176/2001 of 28 November 2001. 39 WHO online information. Viewed at: http://www.who.int/medicines/areas/quality_safety/

regulation_legislation/certification/en/ [5 May 2008].


figure in Mozambique’s Registry of Pesticides to be authorized for importation by the Ministry of Commerce.40

39. Mozambique complies with the international trade sanctions stipulated by the United Nations Security Council and the regional bodies to which it belongs.

(vi) Standardization, accreditation, and certification

40. Mozambique’s standardization regime and its accreditation and certification procedures have not been modified since its previous Review. The Instituto Nacional de Normalização e Qualidade (INNOQ), established in 199341, is the administrative authority in charge of policy, which also concerns metrology and quality, and is under the technical supervision of the Ministry of Commerce. INNOQ has notified the ISO/IEC Secretariat of its acceptance of the Code of Good Practice annexed to the WTO TBT Agreement.42 A demand for a standard typically originates in the private sector, via the Confederation of Economic Associations (Confederação das Associações Económicas, CTA), and is communicated to INNOQ. It is allocated to a working group, which examines the available international standards (ISO, Codex, IEC), then translates the selected standard, which is adopted and published in the Government Gazette (Boletim da Republica). To date, INNOQ’s four committees have issued 72 standards, and have an ambitious programme for 2008.43 Under the Mozambican regime, INNOQ-issued standards may become mandatory after adoption as a regulation by the Ministry concerned. The technical regulations adopted since 2001 concern salt, mineral water and cement.44 In the absence of a national testing laboratory, no certification is required for imported products.

41. A national strategy on quality was adopted in 2003.45 INNOQ has developed voluntary standards on the quality, packing, and labelling of many agricultural products, including bananas, butter, cashew nuts, copra, honey, papayas, and pineapple, which are among Mozambique’s principal exports.

42. INNOQ participates in discussions on standards, quality, accreditation, and metrology held under the auspices of SADC. As a correspondent member of the ISO, Mozambique does not take an active part in the technical and policy-making work of the organization, but receives its documentation on standards.

(vii) Sanitary and phytosanitary (SPS) measures

43. Mozambique’s sanitary and phytosanitary measures have not been revised substantially since 2001. Responsibility for such measures is spread across several ministries, including the Ministries of Agriculture and Fisheries, responsible for sanitary measures relating to animal and plant health, and animal medicine and pesticides; and the Ministry of Health, responsible for regulation of, and

40 Decree No. 15/2002 of 11 September 2002. 41 Decree No. 2/93 of 24 March 1993. 42 Notified to the WTO by the ISO Secretariat in WTO Document G/TBT/CS/N/69 of 8 July 1997. 43 Committee 1 is concerned with food, health, agri-industry, fisheries, chemical products, and

environment; Committee 2 covers electrical and electronic products, and communications; Committee 3 covers basic standards for health, safety and environment; and Committee 4 covers mechanical products, civil engineering, and transportation. In accordance with the agenda established by INNOQ’s governing board, the technical sub-committees develop preliminary draft standards on which representatives of the sector concerned are then consulted.

44 Information provided by the authorities. 45 Resolution No. 51/2003 of 30 November 2003.


standards relating to, food safety and pharmaceutical products. In addition to the regulatory framework for imported medicines and pesticides, Mozambique has a regulatory frameworks for animal health46, and for seed production, trade, quality control, and certification.47 The only SPS measures on imports are based on international standards drawn up by the World Organization for Animal Health (OIE), the International Plant Protection Convention (IPPC), and the Codex Alimentarius. Fishery products for export to EC markets are subject to specific regulations.

44. With respect to sanitary measures, the authorities observe the OIE recommendations for all diseases. For example, Mozambique bans the importation of live animals from most countries, apart from those declared free of foot and mouth disease by the OIE. Measures are also taken with respect to other animal diseases, including avian influenza and bovine spongiform encephalopathy (BSE).

45. In accordance with Mozambique’s regime for phytosanitary inspections and control48, certain imported products (plants and plant products and the products of apiculture) require a Phytosanitary Licence of Importation, which in turn requires a phytosanitary certificate issued by the country of origin. For seeds, an additional requirement is a certificate stating that the product in question is not genetically modified, as their importation is prohibited by Mozambique.49 Similarly, imports of animals and products of animal origin must obtain a Sanitary Licence of Importation, issued by the veterinary authorities.50

(viii) Packaging, marking, and labelling

46. Compulsory packaging, marking, and labelling requirements apply to imported products. For example, pre-packaged foods must be labelled in Portuguese, indicating the origin, the sell-by or use-by date, the ingredients, the method of storage, and the name and registration number of the manufacturer. Use of the metric system is compulsory.

(ix) Contingency measures

47. Mozambique does not have any legislation on contingency measures.

(x) Other measures

48. No agreements have been signed with foreign governments or enterprises with a view to affecting the volume or value of goods and services exported to Mozambique. Likewise, the authorities are not aware of any such agreements between Mozambican and foreign companies.

(3) MEASURES DIRECTLY AFFECTING EXPORTS

(i) Registration

49. Exporters in Mozambique must be licensed by the Ministry of Commerce (section (2)(i) above). Traders wishing to export under a preferential regime must also register with the Ministry of Commerce. Further requirements apply to exporters of cashews (Chapter IV(2)(iii)(d)), and to mining and petroleum products (Chapter IV(3)(i)).

46 Decree No. 08/2004 of 1 January 2004. 47 Decree No. 184/2001 of 19 December 2001. 48 Ministerial Diploma No. 134/92 of 2 September 1992. 49 Article 33, Ministerial Diploma No. 184/2001 of 19 December 2001. 50 Article 21, Decree No. 08/2004 of 1 January 2004.


(ii) Customs procedures

50. Exports are subject to the same customs clearance procedures as imports (section (2)(ii)), requiring notably a Documento Unico (DU). In addition, exporters seeking access to a preferential regime (Chapter II(3)(ii))51, must obtain a certificate of origin from the Ministry of Commerce, which is responsible for certifying that rules of origin are met. Phytosanitary or sanitary certificates may also be required. According to the World Bank, clearance of typical export operation takes on average 26 days, and the average cost of a container for a typical export operation is US$1,200.52

51. Entry and export of foreign currency is registered for the purpose of gathering balance-of-payments statistics (Chapter I(2)).

(iii) Export duties and taxes

52. Mozambique imposes an export tax of between 18% and 22% of the f.o.b. customs value on raw cashews, as determined by the cashew institute INCAJU53; since the 2003-04 cashew campaign the rate has been 18%.54 Although no other specific export tax appears to be applied, certain items, which are almost entirely exported, are subject to charges, e.g. cotton (Chapter IV(2)(iv)), fishery products (Chapter IV(2)(iv)), forestry products (Chapter IV(2)(v)), and mining products (Chapter IV(3)(i)). For instance, a royalty of Mt 2,000/m3 applies to exports of unprocessed precious tropical wood, with a 25% reduction applying if processed.55

(iv) Prohibitions, quantitative restrictions, and licences

53. Mozambique’s export prohibitions, quantitative restrictions, and licencing regime remain largely unchanged since 2001.56 Mozambique prohibits exports of counterfeit products, pirated goods and goods bearing false indications of origin, as well as works of art or antiquities, ivory, and objects made of ivory. Special export regulations apply to certain products including plant and vegetable matter (requiring a phytosanitary certificate); animals and products thereof (requiring a sanitary certificate); products subject to export taxes, such as cashews; precious metals, gemstones, and mineral products (requiring licensing by the Ministry of Mining (Chapter IV(3)(i)); gold and silver, which may only be exported by the Bank of Mozambique; and narcotic drugs (requiring authorization from the health services). In addition, Mozambique applies prohibitions and licences to exports of fauna and flora under multilateral environmental agreements to which it is a party.57 Since 2002, a prohibition applies to exports of unprocessed wood as defined in Annex I of the regulations, reserved to local processors, but not to exports of unprocessed precious tropical wood species, such as ebony and rosewood.58

(v) Export subsidies, assistance, and promotion

54. Mozambique does not provide any export subsidies.

51 Such as SADC and MMTZ provisions on textile and clothing exports, and the Interim Trade

Agreement with the EC (Ministerial Diploma No. 141/2001 of 26 September 2001), AGOA (Ministerial Diploma No. 170/2001 of 14 November 2001, as amended.) or China (Ministerial Diploma No. 146/2005 of 3 August 2005).

52 World Bank (2008). 53 Law No. 13/99 of 1 November 1999. 54 Diploma Ministerial No. 113/2003 of 30 September 2003. 55 Decree No. 12/2002 of 6 June 2006. 56 Tables II and IV of Decree No. 30/2002 of 2 December 2002. 57 UNEP (undated). 58 Decree No. 12/2002 of 6 June 2002.


55. Mozambique’s Instituto para a Promoção de Exportações (IPEX)59 takes on the role of a traditional trade promotion body. It promotes exports from Mozambique in destination markets it identifies, and advises exporters and investors on market access opportunities and export-related logistical services. Its core activity is organizing missions to trade fairs; according to information provided by IPEX, 50 companies were taken to 28 trade fairs over the period 2003-05.60 Its annual budget is US$600,000 (of which 35% is dedicated to trade fairs); it does not charge exporters for its services.

(vi) Industrial Free Zone (IFZ) regime

56. The Industrial Free Zone (IFZ) regime, in place since 1999, remains Mozambique’s main export promotion strategy.61 The largest IFZ enterprise is Mozal, producing aluminium from imported alumina. Aluminium is Mozambique’s leading export (Chapter I(3)). Mozal’s decision to invest in Mozambique was partly motivated by the electricity tariffs that it was able to obtain from state-owned Electricidade de Moçambique (EDM) (US$ 1.03/kWh), which are considered low by international standards.62 The low cost of electricity was also a factor in the projects established under the IFZ regime to exploit Mozambique’s titanium-bearing sands, which include the Mozambique Titanium Minerals project (Moma) and the Limpopo Corridor Sands project (Chapter IV(3)(i)).

57. An investor wishing to establish an IFZ must first obtain authorization from the Council of Ministers for land usage rights and to install security systems.63 This authorization is contingent upon: total permanent employment positions for at least 500 Mozambican nationals; individual enterprises wishing to establish as IFZs are required to create permanent employment positions for at least 250 Mozambican nationals, and export at least 85% of annual production. An IFZ can also accommodate enterprises that supply to other enterprises established in an IFZ. Exploration and extraction of natural resources, and processing of cashew nuts, fish, and prawns, are not accepted as IFZ activities.

58. Proposals for IFZs are sent to the Council of Industrial Free Zones (CZFI) for examination and submitted to the Council of Ministers for authorization. Once this is obtained, the CZFI issues the investor an IFZ Developer Certificate, which allows the holder an exemption from the application of customs duties, VAT, and excise taxes on imports of construction materials, machinery, equipment, accessories, accompanying spare parts, and other goods destined for the establishment and operation of the IFZ. The CZFI also issues IFZ Enterprise Certificates to companies wishing to establish and operate in an IFZ. Such enterprises also benefit from an exemption from customs duties, VAT, and excise taxes on imports of inputs, equipment, and materials required to operate. Under the current IFZ regime, holders of IFZ Developer Certificates or Enterprise Certificates are granted a reduction of 60% on the standard corporate tax rate on their profits (the standard rate is 32%), for ten years following the start of production; older projects benefit from higher reductions.64 Enterprises established in an IFZ are subject to the exchange regime applied in the rest of the territory, but benefit from a simplified procedure for the repatriation of profits or dividends (Chapter I(2)).

59 IPEX online information. Viewed at: http://www.ipex.gov.mz/en/. 60 USAID (2006e). 61 Decree No. 62/99 of 21 September 1999, as modified by decree No. 35/2000 of 17 October 2000 and

Decree No. 16/2002 of 27 June 2002. 62 Bucuane and Mulder (2007). 63 In accordance with the Land Law, the land on which an IFZ is established is leased for a renewable

period of 50 years. 64 For example, the Moma project established in 2000 will pay a tax of 1% of turnover after year six of

production. "MOMA Project – Mining & Implementation Agreements". Viewed at: http://www. kenmareresources.com/moma/agreements.asp [2 October 2008].


59. Sales from IFZ enterprises into the national customs territory are treated as imports and subject to import duties and taxes; sales from the national customs territory to the IFZ are treated as exports, and are granted an exemption from VAT.

(4) MEASURES AFFECTING PRODUCTION AND TRADE

(i) Incentives

60. Mozambique grants fiscal benefits to enterprises under various regimes (Chapter II(4)) including the Industrial Free Zone (IFZ) regime (section (3)(vi) above). State-owned enterprises supplying fuel (Chapter IV(3)(i)), electricity and water (Chapter IV(3)(ii)), transportation services (Chapter IV(5)(iii)), fixed-line telecommunication and postal services (Chapter IV(5)(ii), and health and educational services, may also benefit from state aid, as does agriculture (Chapter IV(2)(ii)). The authorities finance subsidies from the budget, supported each year by contributions from Mozambique’s Program Aid Partners (PAPs); US$774.3 million has been pledged for 2009.65

(ii) Competition and price controls

61. Mozambique developed a general policy on competition in 200766, but the regulatory framework for its implementation is still under consideration by the Assembly. This policy notes the possible existence of anti-competitive practices such as the imposition of excessive prices, price discrimination, predatory pricing, refusal to sell or to buy, conditional sales, as well as abuse of dominant positions, agreements between companies designed to reduce the competition in the market, and concentrations that impede competition. Although anti-competitive practices are not subject to remedy, the authorities may exert informal pressure on the enterprise or enterprises concerned by such a practice.

62. Several independent assessments suggest that Mozambique could benefit from a legal framework for competition policy.67 Mozambique is a relatively small market of just under 20 million people, and production of sugar, beverages, flour, processed food products, and building materials is highly concentrated (Chapter IV). Imports are not subject to quotas, but are subject to the application of high duties, VAT, excise taxes, and, in some instances, surtaxes (section (2)(iv)). In the case of sugar, the companies operate as a cartel controlling domestic production and distribution and, thus, effectively imports and exports. This policy has been criticized by the domestic industries that consume sugar, especially beverage-makers, which purchase imported sugar rather than the domestically produced product.68

63. Mozambique has continued its policy of allowing prices to be set by the market, with the exception of sugar, and the minimum purchase prices for growers of cashews, tobacco, and cotton (Chapter IV). Fuel prices are also regulated, with an adjustment mechanism for movements in world market prices, applied on a monthly basis (Chapter IV (3)).69 Mark-ups on imported medicinal prices are regulated.70

65 Africa News, "Mozambique donor partners pledge U$774.3 in grants". Viewed at: http://www.

apanews.net/apa. php?page=print_eng&id_article=64962 [2 October 2008]. 66 Resolution No. 37/2007 of 12 November 2007. 67 CUTS International (2006); and ICTSD (2007). 68 CUTS International (2006); and ICTSD (2007). 69 Decree No. 63/2006 of 28 January 2006. 70 Ministerial Diploma No. 109/90 of 29 May 1990.


(iii) State trading, state-owned enterprises, and privatization71

64. Mozambique has not made any notifications to the WTO concerning state trading enterprises within the meaning of Article XVII of the GATT; there do not appear to be state-owned enterprises with exclusive trading privileges.

65. Mozambique’s privatization programme is widely considered to be among the more ambitious and successful programmes of its kind in Sub-Saharan Africa.72 At the time of its previous TPR in 2001, a large number of enterprises had been divested by the State, partly or wholly, although enterprises in sectors considered strategic continued to be wholly-owned.73 Among the strategic sectors are fixed-line telecommunications and postal services, water and electricity in urban areas, national parks, and trade in arms and ammunition. In particular, Electricidade de Moçambique (EDM) holds a de facto monopoly on the production, transmission, distribution, and sale of electricity in urban areas (Chapter IV(3)(ii)), Aguas de Moçambique (AdM) holds a monopoly on the production, transmission, distribution and sale of water in urban areas (Chapter IV(3)(ii)), and Telecomunicações de Moçambique, E.E. (TDM) holds a monopoly on the supply of fixed-line telecommunications services (Chapter IV(5)(ii)). The sale of a stake in TDM to a strategic investor and the licensing of a second fixed-line operator were foreseen for 2007, but have been indefinitely postponed.74 In addition to wholly owned enterprises considered strategic, the State holds stakes in enterprises that are the sole domestic suppliers in many activities, such as: the airline, Linhas Aereas de Moçambique; airport services, Aeroportos de Moçambique (ADM); rail transport and ports, Caminhos de Ferro de Moçambique; upstream petroleum activities, the three companies PETROMOC, CMH, and CMG; and beverages, e.g. Beers of Mozambique (CDM).

66. State shareholdings are managed by the Instituto de Gestão de Participações do Estado (IGEPE)75, which is a self-financing and autonomous agency, established in December 2001. By the end of 2006, IGEPE’s responsibilities comprised a portfolio of 155 companies (279 companies at the time of its creation); however, a list was not provided to the Secretariat. The State divests its shareholdings to private investors (including on the Maputo Stock Exchange), or to managers, technicians, and employees (GTTs), granted reserved stakes of 20% of shares in several enterprises. Major companies divested include CSM and TREFIL, to Mittal Steel of South Africa; Texmoque Textil of Mozambique, to METL Group from Tanzania; IFLOMA, to Komatiland Forest Ltd.; and EMMA, to Complexo Industrial do Planalto. IGEPE may also liquidate an enterprise or acquire new shareholdings. In 2007, the State acquired from the Government of Portugal a 67% share of Hidroeléctrica de Cahora Bassa (HCB), which operates the Cahora Bassa dam, for US$700 million; it already owned an 18% stake. IGEPE is also active in restructuring companies (e.g. Xinavane Sugar Mill) with the goal of increasing production and employment. A National Commission for Evaluation and Selling (CNAA), under the technical responsibility of the ministry in charge of finance, is responsible for organizing the process of privatization.

67. In 2005, the State adopted regulations on the function of Public Manager to professionalize the management of state-owned enterprises.76 Further regulations on the activities of state

71 The principal source for this section is IGEPE (Instituto de Gestão de Participações do Estado),

No. 1, June 2007. 72 Agencia de Informação de Moçambique, News, 18 April 2008. Viewed at: http://allafrica.

com/stories/printable/200804180846.html [26 May 2008]. 73 A very large number of state-owned enterprises was one of the legacies of the period of central-

planning that followed independence. 74 Pinter (2003). 75 Decree No. 46/2001 of 26 December 2001. 76 Decree No. 28/2005 of 23 August 2005.


representatives on the governing boards of enterprises where the State holds a stake were adopted in 2007, again to professionalize this activity.77

68. In 2003, the State adopted regulations to accelerate the process of transferring stakes to GTTs.78 In 2006, it adopted a regulation allowing GTTs or national investors in privatized companies to delay payment of the acquisition for up to 15 years; those that had paid up 75% of the value of their acquisition would be deemed to have fulfilled their payment obligations.79

(iv) Government procurement

69. Mozambique’s legal framework for government procurement has been completely revised since its first TPR, with the aim of bringing it into line with international guidelines for good practice. This is a development of key importance to Mozambique. The State is a major contributor to domestic economic activity, and the efficient supply of basic services (public housing, health, education, electrification, water supply, transportation, and sanitation), is a major component of PARPA II. Procurement has been identified by the authorities as among the domains where corruption is an issue.80 In keeping with the objectives of the fiscal management system adopted in 2004, Sistema de Administração Financeira do Estado (SISTAFE), the Procurement Regulations adopted in 2005 are aimed at bringing the benefits of competitive tendering procedures to contracts.81 Their implementation is overseen by the Functional Unit of Supervision of Acquisition (Unidade Funcional de Supervisão das Aquisições (UFSA)), established in 2006; however, the UFSA is limited to providing technical advice.82 The Regulations are applied by the Unidade Gestora Executora das Aquisições (UGEAs), contracting entities that are being established progressively at all levels of government. The UGEAs select the regime for the tendering procedure, award the contract, and oversee its execution. A public procurement portal advertises contracts and awards.83

70. The Procurement Regulations apply to public works and housing, the purchase of goods and services by the State, including consultancy services and concessions awarded by the State; its scope of application encompasses all bodies and institutions of the State, including municipalities and state-owned companies. The Regulations are being implemented progressively. A special regime applies to contracts that result from a treaty obligation, or that are financed by a foreign aid donor, as the latter typically contain their own procurement methods (e.g. preference granted to nationals of the donor). For contracts financed by the Government of Mozambique, the UGEAs have various regimes with associated procedures (Table III.4). Contracts awarded under the general regime require an open tender procedure, and the general regime may be applied to contracts of any value. Limited tenders may be used for contracts worth up to Mt 1.75 million (equivalent to US$70,000) for public works, and up to Mt 875,000 (US$35,000) for goods and services. Direct negotiation is allowed for contracts worth 5% of these thresholds; and simplified procedures for small contracts worth 15% of the thresholds.

71. Contracts are open to nationals and foreign persons meeting the qualification requirements.84 Potential contractors may submit their qualifications in advance and be registered for this purpose with UFSA. Foreign persons must have a representative in Mozambique to qualify. UGEAs may

77 Decree No. 07/2007 of 13 March 2007. 78 Decree No. 49/2003 of 25 November 2003. 79 Decree No. 23/2006 of 30 May 2006. 80 CIRESP (2006). 81 Ministerial Diploma No. 141/2006 of 5 September 2006. 82 Decree No. 54/2005 of 13 December 2005. 83 Portal de Concursos Públicos online information. Viewed at: http://www.concursospublicos.gov.

mz/English/privacy_policy.php. [6 April 2008]. 84 Article 18, Decree No. 54/2005 of 13 December 2005.


grant national bidders a preference of 15% for the supply of goods and services to the State, provided 30% of inputs are sourced domestically, and of 10% for public works, in each case provided domestic sourcing requirements are fulfilled; the measure is designed to boost the national private sector.85 However, the UFSA observed that it is not notified of preferences granted to nationals, and it is unclear whether any are granted. In general, contracts must be priced in the national currency, and bids supplied accordingly. Bidders that are dissatisfied with the outcome may write to the UGEA in question, which asks the UFSA for technical advice; the UFSA received 27 such referrals in 2007, and supplied (non-binding) technical advice in 14 cases. The Administrative Tribunal is the judicial instance responsible for disputes on procurement.

Table III.4 Regimes, procedures, and scope of application of the procurement regulations, 2008

Regime Procedure Scope of application

General regime Open tender Any value Public works: contracts up to Mt 87,500 Direct negotiation

Goods and services: contracts up to Mt 43,750

Public works: contracts up to Mt 1.75 million Limited tender Goods and services: contracts up to Mt 875,000 Pre-qualification Two-stage

Exceptional regime

Other

Auction Small contracts Simplified Public works: contracts up to Mt 262, 500Goods and services: contracts up to Mt 131,250

Source: Information provided by the Mozambican authorities.

72. In 2007, the UGEAs awarded 1,398 contracts through the use of a public tender, for a total value of Mt 2.3 billion (US$92 million) (Table III.5); 68% of the contracts were awarded by open tender, a method used at all levels of Government. In addition, in 2008, UGEAs awarded 258 contracts through direct negotiation, without tender, for a total value of Mt 60 million (US$2.4 million).86

Table III.5 Use of tendering procedures in contracts, 2007

Open

tenders Limited tenders

Small contracts

Consultancy services Total

Share (%)

Central government 501 86 30 42 659 47 Provincial government 372 219 33 27 651 47 Districts 33 4 2 0 39 3 Towns 44 0 0 5 49 4 Total 950 309 65 74 1,398 100 Share of total (%) 68 22 5 5 100


(v) Protection of intellectual property rights (IPRs)

(a) Overview87

73. Since its first TPR, Mozambique’s intellectual property regime has been brought into closer conformity with the provisions of the TRIPS Agreement, as they apply to LDCs. Mozambique's

85 Article 24, Decree No. 54/2005 of 13 December 2005. 86 Information provided by the authorities. 87 WIPO (2007).


protecting for industrial property dates from 199988, while protection for copyright and related rights dates from 200189; Mozambique has not yet notified its IPR regime to the WTO. The industrial property regime is administered (since May 2004) by the Instituto da Propriedade Industrial (IPI)90, a self-financing autonomous agency under the technical responsibility of the Ministry of Commerce and Industry, while the copyright regime is administered by the National Institute of Books and Recordings (INLD), a division of the Ministry of Culture.

74. Mozambique has been a member of the World Intellectual Property Organization (WIPO) since December 1996. In 1998, Mozambique acceded to the Paris Convention for the Protection of Industrial Property, the Madrid Agreement (International Registration of Marks), and Madrid Protocol. In May 2000, it acceded to the Patent Cooperation Treaty (PCT), and in January 2002, to the Nice Agreement (Classification of Goods and Services). Mozambique has been a member of ARIPO (African Regional Intellectual Property Organisation) since May 2000.

(b) Industrial property

75. Mozambique’s law on industrial property rights was updated in 2006.91 It covers: patents; utility models; industrial designs; marks; trade names and insignia of establishments; appellations of origin and geographical indications; and logos, accompanied in each case by a term of protection.

76. Under the 2006 Decree, inventions are patentable, provided they are new, involve an inventive activity, and are capable of industrial application (with the noteworthy exception of computer programs, which are protected as literary works (section (c) below)), and the term of protection is 20 years. Protection for utility models is for 15 years and industrial designs for 5 years, renewable for up to 25 years; for marks, trade names and insignia of establishments, and logos, the term is 10 years, renewable indefinitely for periods of 10 years. Indefinite protection is granted to appellations of origin and geographical indications.

77. The law contains provision for a compulsory licence to be granted by the Minister of Industry and Commerce "without the consent of the proprietor of the patent, for reasons of public interest", but with "adequate remuneration". In 2004, Mozambique issued its first (and only) compulsory licence, for the manufacture of anti-retrovirals (ARVs), with annual royalties to the proprietor not to exceed 2% of sales.92 However, the manufacturing facility has not yet been established (September 2008).

78. The IPI administers the industrial property regime, and its portal contains the information needed to file an application for grant or a renewal, including laws and regulations, forms, procedures, and fees.93 The authorities indicate that procedures have been simplified since 2001. There are 74 recognized patent and trademark agents in Mozambique. Upon receipt of an application, the IPI initiates the procedure for examination and eventual registration; unsuccessful applicants may appeal

88 Decree No. 18/99 of 4 May 1999. 89 Law No. 4/2001 of 27 February 2001. 90 Decree No. 50/2003 of 24 December 2003. 91 Decree No. 4/2006 of 12 April 2006. 92 The licence notes that Mozambique is among the countries in Africa that have been worst hit by the

HIV/AIDS pandemic. In 2006, the Government estimated about 1.6 million HIV-positive Mozambicans, of which around 15% should be taking anti-retroviral drugs (ARVs), supplied, however, only to about one quarter of this population by the end of November (Compulsory licence No. 01/MIC/04). The licence was granted to Pharco Moçambique for patent rights to lamivudine, stavudine, and nevirapine, as a fixed-dose combination. Viewed at: http://www.cptech.org/ip/ health/c/mozambique/moz-cl-en.pdf [12 June 2008]; Mozambique News Agency, AIM Report No.331, 18 December 2006. Viewed at: http://www.poptel.org.uk/mozambique-news/newsletter/aim331.html [29 June 2008]; and WTO document WT/MIN(01)/DEC/2 of 20 November 2001.

93 IPI online information. Viewed at: http://www.ipi.gov.mz/rubrique.php3?id_rubrique=39.


to IPI. Industrial property titles are published in the Industrial Property Bulletin. Mozambique recognizes industrial property titles secured through the regional organization ARIPO. The IPI is the receiving office for applications under the Patent Cooperation Treaty, as well as applications for the international registration of marks under the Madrid Agreement.

79. With respect to infringement of industrial property rights, the 2006 Decree clarified the scope of the law to include counterfeit products94, and introduced fines to deter infringement.95 Parallel imports are not covered. Infringement of exclusive rights in a patent is punishable by a fine of 89 times the minimum wage, in the event the offender is a person, and 200 times the minimum wage if the offender is an enterprise; for industrial designs, the fine is respectively, 33 or 120 times the minimum wage. The counterfeiting, imitation, illegal, and illicit use of marks is punishable by a fine of respectively, 120 or 240 times the minimum wage for a person or enterprise. The authorities observe that counterfeiting of marks is the leading cause of infringement of intellectual property rights in Mozambique, concerning notably toothpaste, soap, cooking oil, and biscuits.

80. Supervision of industrial property rights is the responsibility of the General Inspectorate of the Ministry of Industry and Commerce, in consultation with the IPI; the law provides for the establishment of a brigade composed of members of both entities. Complaints by holders of industrial property title are to the General Inspectorate, which investigates and decides whether infringement has occurred. The Inspectorate may order the seizure of infringing products or merchandise upon import or export, or may refer the matter to the Common Court. The authorities provided no details on the operation of these provisions.

(c) Copyright and related rights

81. Mozambique’s copyright regime was adopted in 2001, at the time of its first TPR. It covers literary, artistic, and scientific works; computer program are explicitly identified as literary works. This applies, in particular, to the term of copyright protection which, under the Mozambican regime, covers the life of the author plus 70 years (in the event of joint authorship, the term is 70 years after the death of the last surviving author), while a term of 50 years applies for performers’ rights and sound recordings, and 25 years for broadcast programmes.

82. According to the law, the onus is on the injured party or his legal representative to institute legal proceedings in defence of infringed rights.

94 Article 177. Article 160 of Decree No. 18/99 of 4 May 1999 only proscribed the illegal use of

marks. Counterfeiting, imitation and illicit use of appellations of origin or geographical indications are also proscribed since 2006.

95 Decree No. 4/2006 of 12 April 2006, Title III.


IV. TRADE POLICIES AND PRACTICES BY SECTOR

(1) INTRODUCTION

1. The agriculture sector is the major employer in Mozambique, absorbing around three quarters of the labour force; however, its contribution to GDP was only around 25% in 2007 (Table I.1). Hence, raising productivity is among the key policy objectives in this sector, as this would contribute to poverty reduction and to attain food security, which are amongst Mozambique's overall policy objectives. Government policies in this regard include expanding the provision of extension services, and supplying kits (seed, fertilizer, equipment) on credit to cereal and groundnut farmers in "high-potential growth" areas of the country. Natural disasters disrupt domestic production, and food-aid policy can be significant in alleviating hardship. Mozambique's major agricultural exports include cashews, cotton, sugar, tobacco, and fishery and forestry products. Agriculture has remained the most protected sector with an average tariff of 12.4% (ISIC 1), compared with an overall MFN average of 10.1%. Government intervention remains in place in the main subsectors: cashews, cotton, sugar, and tobacco.

2. Manufacturing activities are very limited. Export-oriented production, mainly aluminium, takes place under the Industrial Free Zone regime. Foreign direct investment has been instrumental in the expansion of aluminium production, the exploitation of mineral sands, coal, and natural gas, as well as electricity generation at the Cahora-Bassa Hydroelectric Facility (HCB) on the Zambezi river. Such investments have been fostered since 1999 by generous incentives offered under the Investment Code, in particular the Industrial Free Zone regime, and low (and preferential) electricity tariffs for industrial users. Industrial development has been export-oriented, favouring the emergence of a dual economy. Incentives were curtailed in 2002 in the Fiscal Benefits Code, and are again under review to attempt to increase fiscal revenue from megaprojects. Despite promising signs from petroleum exploration activities, domestic fuel needs continue to be met entirely by imports, with prices regulated and adjusted periodically to reflect world market price developments; biofuels production is expanding. Liberalization of downstream petroleum activities has taken place at the retail level, although importation of fuel products is still reserved to the state-owned enterprise IMOPETRO, which assumed the function from PETROMOC in 1998. Supply-side constraints in Mozambique remain significant, and include access to water, electricity, and financial services; the environment for doing business is difficult and undermined by poor governance.

3. The contribution of services to GDP has not changed substantially during the period under review. Further, development of the sector is necessary for Mozambique's continued economic growth. For, instance, access to affordable finance remains an outstanding constraint on business activity; access for the agriculture sector to credit, in particular is low. Micro-credit activities are expanding but generally banking and insurance remain relatively underdeveloped. Teledensity has progressed substantially as a result of the rapid increase in the use of mobile communication services, although provision of Internet service remains low; privatization of the incumbent fixed-line operator has been postponed indefinitely. The development of Mozambique’s port and ground transportation links has sustained the growth of industrial activity as well as trade. Mozambique is a gateway for its landlocked neighbours and to South Africa. The rehabilitation of the transportation infrastructure, devastated during the Civil War (which ended in 1992), has been a major focus of government policy. Ports and railways in the north are operated under concessions granted to foreign investors. This rehabilitation has been instrumental in the development of Mozambique’s tourism. However, inadequate and costly air transport services remain an impediment for growth in the tourism sector. Mozambique made only few commitments under GATS. Widening the scope of these commitments might support Mozambique’s efforts to overcome these bottlenecks, by attracting national and foreign investment.


(2) AGRICULTURE AND RELATED ACTIVITIES

(i) Overview1

4. Agricultural activities, including farming, raising livestock, fishing and forestry, contributed one quarter of GDP in 2007, and is estimated to remain at the same level in 2008 (Table I.1). Agricultural activities occupied around 14 million people in 2007, with a greater share of women employed in the sector than men. The largest employers are the sugar estates; and commercial farms. Agricultural products (cashews, tobacco, cotton, sugar, and fishery and forestry products) are also important exports (Chapter I(3)(i)).

5. Just over 10% of Mozambique’s 36 million hectares of arable land are cultivated. According to the last agricultural census, conducted in 1999-2000, Mozambique’s 3.1 million smallholders occupy about 95% of cultivated land. These farms produce basic food crops (beans, cassava, maize, groundnuts, and rice), mainly for subsistence purposes, as well as cash crops (cotton and tobacco), and cashew nuts. The average size of most farms in Mozambique is around 1.2 hectares, and use of credit and inputs is low2, leading to relatively low yields by regional standards. The authorities are however distributing "kits" (seeds, fertilizer, equipment) on credit to producers of cereals and groundnuts, for use in the 2008/09 season, in selected "high-potential" areas of the country, to increase productivity.3 Cotton and tobacco are produced mainly under "out-growing" contracts with cotton and tobacco companies, under which the companies provide seeds, fertilizers, and inputs on credit, which farmers repay once the company has purchased the harvested crop; farmers may form associations to interact more effectively with buyers.

6. Food habits have changed in Mozambique. As the country develops, demand is increasing for cereals (rice and wheat) and milk products, which are mainly imported, as well as for horticultural products, also imported but increasingly cultivated in peri-urban areas. In addition, spending on food accounts for a substantial share of low-income household expenditures, hence any increase in the price of food has a substantial impact on levels of poverty. As a result, the Government perceives food security as a priority, and hopes to improve it by fostering a "green revolution".

7. Natural disasters, such as droughts and flooding, periodically disrupt production in certain parts of the country. At the time of the first TPR of Mozambique, major floods had decimated the anticipated 1999/2000 season output, and floods again affected production in 2007/08. Aside from the 2004/05 agricultural season, production of most basic crops has risen steadily since 2002, mainly as a result of an increase in land under cultivation (Table IV.1). In particular, maize production was up by 25% between 2002 and 2006, but declined almost by 20% in 2007/08; cassava and maize are the staple foods. With respect to cash crops, between 2002 and 2006 the production of tobacco more than doubled, while production of cotton increased by 38% (Table IV.2). There was a 30% increase in sugar cane output, and 25% for raw cashew nuts, over the same period. In contrast, livestock herds have decreased sharply, with the exception of cattle, where numbers increased by one third between 2002 and 2007.

1 The main sources for this section are: CEPAGRI (2006); Republic of Mozambique (2007); WRI

(2003); FAO (undated); and USAID (2004) Vol. 2, Chapter 10. 2 According to CEPAGRI (2006), the share of smallholders that use inputs is: access to credit (4%);

access to price information (30%); access to extension services 15%; use of fertilizer (4%); use of irrigation (4%); use of pesticides (5%); use of animal traction (10%); use of vaccination services for cattle (cattle-owners) (62%).

3 Government of Mozambique online information, "Crise alimentar pode ser oportunidade para relançar produção", 28 April 2008. Viewed at: http://www.portaldogoverno.gov.mz/noticias/agricultura/abril2008/ nots_ag_242_abr_08 [2 June 2008].


Table IV.1 Production of basic food crops, 2002-07

Product 2002 2003 2004 2005 2006 2007 Change

2002-07 (%)

Maize 1,114,772 1,178,792 1,060,396 942,000 1,395,474 1,133,911 2 Sorghum 138,318 190,820 152,910 115,000 201,758 166,873 21 Millet 12,184 21,609 18,305 15,000 22,363 24,816 104 Rice (milled) 93,362 117,483 91,242 65,000 97,611 103,011 10 Beans (Nhemba) 53,724 53,724 50,862 48,000 71,170 62,188 16 Beans (Jugo) 22,000 18,000 12,500 7,000 11,608 20,250 -8 Beans (Manteiga) 35,683 40,854 44,927 49,000 49,627 54,515 53 Sweet potato 455,950 877,165 .. .. 915,252 861,433 89 Peanuts 101,074 87,463 90,232 93,000 84,623 101,311 0 Cassava 3,555,278 6,547,298 .. .. 6,658,708 4,959,275 39

.. Not available.


Table IV.2 Production of cash crops, 2002-06

Product 2002 2003 2004 2005 2006 Change

2002-06 (%)

Cotton seed 82,980 54,144 92,000 78,500 114,829 38 Raw cashew nuts 50,177 63,818 42,988 104,337 62,821 25 Sugar cane 1,586,260 1,940,799 1,873,262 2,246,985 2,060,317 30 Green tea 12,579 12,690 15,127 16,000 16,000 27 Citrus fruit 24,025 30,000 30,000 30,000 32,000 33 Copra 45,740 47,600 47,000 74,000 47,000 3 Tobacco 25,611 37,051 49,528 65,042 59,071 131 Sunflower seed 4,149 6,400 6,127 7,000 7,000 69


(ii) Agricultural policy

8. Mozambique’s long standing objective is to commercialize agriculture, shifting production away from mainly subsistence activities and promoting access to international markets. A well- developed agriculture sector is key to poverty reduction in rural areas. Hence PARPA II outlines an agricultural policy that is also integrated into Mozambique’s five-year development plan for 2005-09, and its annual plans. The agriculture three-year plans (the latest was issued in June 2008), include sectoral strategies for cashews, cotton, sugar, tobacco, livestock, and forestry products.4 In 2008, the Government reiterated the need to attain "food security" in particular given the sharp increase in food prices since 2007.

9. The Ministry of Agriculture elaborates the national strategy for the sector’s development, which is contained in the "Vision for agriculture" (2003), the "Priorities for agricultural development"

4 The programme on cereals is designed to expand the production of cereals and milling capacity to

reduce imports of rice, wheat, and flour; the programme on beans and soja is designed to support expanded production of animal feed; the programme on roots and tubercles is intended to encourage production and consumption of potatoes in urban areas, and to support the animal feed industry; and the programme on horticultural products in "green zones" is intended to supply proximity markets where demand for such products is greatest.


(2006), and "Mozambique’s green revolution" (October 2007). The latter strategy has five pillars: the proper management of natural resources; the expansion of the areas under cultivation and adoption of productivity-enhancing techniques of production; the development of new markets; credit facilitation; and human and social capital formation. To complement this strategy for increased agricultural production and productivity, the Government also has a policy to develop the road transport infrastructure to better integrate production zones and markets. In order to promote investment in the sector, incentives are available to projects in agri-business, in particular, a reduced corporate tax rate of 10% as opposed to 32% until the end of 2010. These incentives are currently under examination and may be curtailed (Chapter II(4)(iii)).

10. The Agricultural Sector Public Expenditure Program Project (PROAGRI)5, financed with foreign aid6, was launched in 1999 on the basis of the Government’s "Letter of Agricultural Sector Development Policy". Phase I, which covered 1999-04, concerned mainly the decentralization of extension services supplied by the Ministry of Agriculture to farmers; further decentralization is planned, as only 15% of small farm holders have access to the extension services supplied by the National Directorate of Agrarian Extension.7 Phase II started in 2005, and is concerned mainly with increasing productivity and production by supplying extension services to a larger population of farmers, with the target of 20% penetration by 2009. NGOs are also active in the agriculture sector, mainly in providing extension services.

11. The institutions in charge of the different agricultural activities are: the Ministry of Agriculture; the Cotton Institute of Mozambique (IAM); the National Cashew Institute (INCAJU); the National Institute for Agrarian Research (IIAM); and the Centre for the Promotion of Agriculture (CEPAGRI). The IAM administers the policy on cotton adopted in 19988, and INCAJU administers the cashew processing promotion strategy, also in place since 1998.9 The IIAM is responsible for research in agriculture, producing the basic seeds that are supplied to commercial seed companies and farmers contracted to produce certified seeds. CEPAGRI promotes investment in export-oriented agri-business.

12. The laws regulating agriculture in Mozambique concern the use of land, forests and fauna, seeds, fertilizers, animal health, and sanitary and phytosanitary measures, as well as the specific regimes for cotton, tobacco, sugar, and cashew nuts (see section (iii) below). Although land is abundant, title to land remains a controversial issue, and there is no market for land as such. The Mozambican Constitution reserves ownership of land to the State alone, but domestic and foreign persons may obtain non-transferable usage rights under the Land Law adopted in 199710, upon application to the Cadastre (Chapter II (4)(ii)). The Land Law also recognizes customary rights to land in the countryside, although conflicts with potential investors occur periodically.11 According to the World Bank’s assessment of PROAGRI, 2,388 land titles had been granted by provinces by the end of 2006, compared to just 646 at the end of 2000.12 Most farmers, are subsistence farmers and are

5 World Bank (1999). 6 Donors have also financed other projects such as rural water supply off-budget. 7 The World Bank has found such services to be especially significant in expanding agricultural

production in Mozambique, raising incomes by about 8.4% (World Bank, 1999). 8 Resolution No 15/98 of 22 September 1998. 9 Law No. 13/99 of 1 November 1999. Ebizguides online information, "Mozambique: INCAJU:

Cashew Promotion Institute". Viewed at: http://www.ebizguides.com/guides/sponsors/alone.php? sponsor=285&country=1 [29 June 2008].

10 Law No. 19/97 of 1 October 1997. An explanation of the law and regulations is available in Caldeira and Frey (2004).

11 DeWit (2002). 12 World Bank (1999).


not formally licensed, and hence are not taxed. However they require a licence to have access to credit or any fiscal incentives. The Government’s Agricultural Development Fund (FDA) provides credit to farmers, and micro-credit institutions are also active in the countryside.

13. The IAM and the Ministry of Agriculture set minimum purchasing prices for growers of cotton and tobacco, respectively, while the National Institute of Sugar (INA) sets a monthly minimum domestic price for sugar, and INCAJU sets an "indicative" export price for raw cashew nuts. For other agricultural products, the main instruments affecting prices are the customs tariff or VAT exemptions to local producers (Chapter III(2)(ii)(d)). Surtaxes apply to imported sugar, and export taxes are levied on raw cashew nuts. Mozambique's tariff gives relatively higher nominal protection to agricultural products than to non-agricultural products: the simple average applied tariff on agricultural products in 2008 (ISIC definition, including livestock, fishing and forestry), is 12.4% (Table AIV.1), compared with an overall average of 10.1%. Agricultural products, including foodstuffs, may be subject to sanitary and phytosanitary measures (Chapter III (2)(vii)).

14. In view of the periodic natural disasters affecting agriculture in Mozambique, the Government has a policy towards food aid, which is elaborated by the National Institute for Disaster Management (INGC) and implemented by the World Food Programme.13

(iii) Policy by subsector14

(a) Sugar

15. Sugar is produced on the estates of Xinavane and Maragra located in Maputo province, and of Sena and Mafambisse located in the central province of Sofala.15 About 32,000 hectares were planted with sugar cane in 2008, with expansion to 50,000 anticipated for 2010-12, to coincide with the introduction, under the EC’s EBA initiative, of quota-free and duty-free access for sugar produced by LDCs16, and the further opportunities from the liberalization of the sugar market among SADC members in 2012, under the SADC Protocol on Sugar. In addition, companies are investing in sugar cane production and facilities to produce bioethanol. This is as a result of the interest in energy diversification.17

16. The sugar estates owned by the sugar companies produce raw sugar cane, which is either milled on-site or exported to South Africa to be refined, then imported to Mozambique, to supply the domestic market or for export, Mozambique does not have sufficient milling capacity to process all

13 WFP online information. Viewed at http://www.wfp.org/country_brief/indexcountry.asp?

country=508 [10 July 2008]. 14 Sources for this section include USAID (2004); and Commonwealth Secretariat (undated). 15 The State is a minority shareholder in the sugar companies of Sena (5%), Mafambisse (25%), and

Xinavane (12%). The Mafambisse and Xinavave companies are majority owned by Tongaat-Hulett of South Africa, vertically integrated with the South African sugar mills. Illove owns the Maragra sugar company.

16 AfricaNews, "Mozambique set to rise sugar production", 18 June 2008. Viewed at: http://www.africanews. com/site/list_messages/18978; and "Tongaat-Hulett Group to expand sugar production in Mozambique for the EU market", 25 January 2007. Viewed online at: http://www.tongaat. co.za/imc/sens/sens_display.asp?yr=2007&sens=70 [10 October 2008].

17 Engineering News, "Procana ethanol project, Gaza, Mozambique", 20 June 2008. Viewed at: http://www.engineeringnews.co.za/article.php?a_id=136097 [10 October 2008]; "Mozambique President sets biofuels objectives: no diversion of food production, all refining in Mozambique". Viewed at: http://biofuelsdigest.com/blog2/2008/01/29/mozambique-president-sets-biofuels-objectives-no-diversion-of-food-production-all-refining-in-mozambique/ [10 October 2008]; and "PETROMOC to JV in $400 million sugarcane ethanol project in Mozambique", 18 March 2008. Viewed at: http://biofuelsdigest.com/ blog2/2008/03/18/petromoc-to-jv-in-400-million-sugarcane-ethanol-project-in-mozambique/ [10 October 2008].


the sugar cane it produces; however, once the sugar harvest is over, the mills are idle. The sugar subsector is a major contributor to employment, with more than 25,000 people engaged on a permanent or seasonal basis by the sugar companies (i.e. estates and mills). Rehabilitation of the sugar estates devastated by the Civil War was among the priorities for Government policy in the mid 1990s.

17. Investors obtain fiscal benefits, including border tax exemptions, for imported equipment, as well as guaranteed minimum prices for raw and processed sugar. The minimum price policy has been in place since 1999; prices are revised annually. In February 2008, Mozambican minimum prices were US$385/tonne for raw sugar and US$450/tonne for processed sugar, with an import surtax, set on a monthly basis, levied on the c.i.f. price, plus the 7.5% tariff on imports of processed sugar. Sugar is exempt of VAT. The sugar companies’ distribution agency, National Distributor of Sugar (DNA), controls the commercialization of sugar throughout Mozambique. DNA also controls sugar exports. Under preferential access arrangements, Mozambican exported sugar is sold at guaranteed prices (above the world market price) on the EC and United States markets. Mozambique also exports to other markets. In 2007, the sugar companies produced 243,000 tonnes, and exported 94,000 tonnes of sugar, earning US$46 million (Table IV.3).

Table IV.3 Sugar exports under preferential regimes, 2001-07 (US$ and tonnes)

Market (tonnes) Yea

r

Quantity (tonnes)

Value (US$)

US EBA Stream 2 of EBA

CQ (ACP/EC)

SPS

SACU EC Sugar

Protocol

World market

2001 22,000 8,295,502 12,786 8,331 n.a. n.a. n.a. n.a. n.a. .. 2002 78,000 18,000,000 13,248 9,140 n.a. n.a. n.a. n.a. n.a. 56,351

2003 62,755 18,770,230 13,000 10,400 n.a. n.a. n.a. 11,481 ..a 27,874

2004 90,907 25,795,865 13,218 3,000 n.a. n.a. 17,200 7,771 ..a 49,718 2005 87,851 37,700,109 14,604 16,800 n.a. n.a. n.a. 5,797 18,650 32,000 2006 170,311 64,633,200 25,658 30,000 n.a. n.a. 1,366 n.a. 13,707 99,580 2007 93,754 45,856,704 0 32,159 4,632 26,324 n.a. n.a. 14,237 16,402

.. Not available. n.a. Not applicable.

a Mozambique acceded to the EC Sugar Protocol in 2003: it was allocated a quota of 6,125 tonnes in 2004 with the same quota attributed retroactively in 2003; three years of quota was exported in 2005.

Note: CQ - Complementary quota; SPS - Special preferential sugar regime.

Source: Mozambican authorities.

18. The protection granted to the Mozambican sugar industry has been the subject of long standing debate. In 2000, the Government decided to maintain the level of import protection for sugar in place since 1999, but to review the policy annually, based on domestic and international sugar market developments.18 At the last review, in 2004, it was decided that the sugar sector policy should not be amended.19

(b) Cotton

19. Cotton seed is the primary cash crop for an estimated 350,000 farmers in Mozambique’s northern and central provinces. Production reached 115,000 tonnes in 2006, after a period of lower annual production due to declining world market cotton prices. According to the DTIS, the operation

18 IMF (2000). 19 Information provided by the authorities.


of the subsector is affected by costs and delays: on the one hand, in distributing inputs to farmers; and on the other, due to financing difficulties for cotton ginning companies caused by the delay between the purchase of inputs and the sale of cotton lint in the international market.20

20. Cotton seed is produced mainly under "out-growing" contracts under which the cotton companies provide farmers and/or their associations with seeds, fertilizers, and equipment on credit, for the season, agreeing on an exclusive buying arrangement for their crop with the cotton company. The Government grants cotton ginning companies closed concessions as exclusive buyers for cotton seed in a specific geographical area, for up to 20 years.21 The Cotton Institute of Mozambique (IAM) establishes the minimum purchase price for cotton on the basis of, inter alia, the producer’s share of the revenue earned upon export of the cotton lint, the world market price of cotton lint, freight and insurance costs to South East Asia, the differential for the quality of Mozambican cotton, and the tax on cotton transactions to help finance IAM's activities.22 This tax is set annually by agreement between IAM and the cotton companies; it was 2.5% of the f.o.b. value of exports in 2007/08. Exporters are required to have their consignments weighed and the quality of the cotton certified by IAM.

21. The simple average tariff on cotton (HS Chapter 52) is 14.7% (Table AIII.1), with protection ranging from the minimum of 2.5% for cotton lint, to 7.5% for cotton thread, and the maximum of 20% for cotton fabric. VAT at 17% applies both to imported cotton lint and cotton seed. Cotton companies may obtain fiscal benefits under the Investment Code, and IAM may import equipment exempt from border taxes on their behalf.

(c) Tobacco

22. Tobacco production increased by 131% between 2002 and 2006, to reach 59,000 tonnes (Table IV.2); some 120,000 smallholders were engaged directly in tobacco production in 2005. Tobacco has also attracted commercial farmers. The organization of the tobacco subsector is similar to that of cotton (since 2002), insofar as tobacco companies obtain closed concessions for up to ten years and conclude “out-growing” contracts with farmers and/or their associations located in the area concerned.23 The three tobacco-processing companies are Mozambique Leaf Tobacco (MLT), Joao Ferreira dos Santos (JFS), and Standard Comercial (STANCOM). Until the establishment of MLT’s processing unit in 2005, all domestic production was exported in the form of raw tobacco leaf to Malawi and Zimbabwe for processing and export.

23. Only companies producing tobacco products may import tobacco leaf24, but only MLT has a processing unit in Mozambique. In 2006, imports of unmanufactured tobacco amounted to US$15.5 million. Imported cigars, cigarettes, and tobacco are subject to the maximum tariff of 20% (Table AIII.1), VAT of 17%, and an excise duty of 65%.25 Using the ISIC definition, tobacco manufacturing is subject to the maximum level of tariff protection of 20%, well above the overall average of 10.1% (Table AIV.1).

20 USAID (2004). 21 Decree No. 8/91 of 23 April 1991, and its regulations in Ministerial Diploma No. 91/94 of

29 June 1994. The system of closed concessions was relaxed in 2000 to allow the farmer to sell cotton to a company other than the concessionaire, provided no inputs had been received. The authorities are considering a revision to these regulations to reduce the term of concessions to 5-10 years, expand private ginning capacity, and enlarge the opportunities for farmers to sell cotton outside the concession regime.

22 Information provided by the authorities. 23 Ministerial Diploma No. 176/2001 of 28 November 2001. 24 Article 22 of Ministerial Diploma No. 176/2001 of 28 November 2001. 25 Decree No. 37/2002 of 11 December 2002.


(d) Cashews

24. Cashew nuts are among Mozambique's four leading agricultural exports (with sugar, cotton, and tobacco). The social and economic significance of cashews derive from their position as the single leading cash crop, with nuts harvested by about 1.2 million farmers, and significant female employment in the processing sector.26 Plantations of trees date from the 1950s and 1960s, and many trees are infected with mildew, which reduces their productivity; Mozambique was the world’s leading producer of cashew nuts in the 1970s. In 2007, some 75,000 tonnes were produced, of which about 20,280 tonnes were processed domestically, using mainly labour-intensive methods; the rest was exported raw to India.27 In 2008, the National Institute for Cashews (INCAJU) anticipated production of 85,000 tonnes, of which some 25,000 tonnes would be processed domestically.28

25. INCAJU is in charge of implementing the Government’s cashew promotion strategy. INCAJU's objectives are to increase production to a target level of 100,000 tonnes, and to promote domestic processing, preferably by the use of labour-intensive shelling techniques. INCAJU sets an indicative minimum export price for raw cashew nuts as the basis for the imposition of the 18% tax on exports of raw nuts. The minimum price export was fixed at Mt 15/kg (about US$0.60) at the end of 2007. The policy of taxing growers for the benefit of processors was heavily debated in the 1990s.29 However, the export tax on raw nuts is INCAJU's main source of revenue. INCAJU supplies extension services to farmers, and sets the dates to start harvesting; it promotes the renewal of plantations, supplying farmers with fungicides.

26. The current regime for internal and external trade in raw cashew nuts dates from 2003.30 Only operators and processors licensed by the Ministry of Commerce may purchase the nuts. Exporters' consignments must be weighed, and the quantity and quality of the nuts certified, by INCAJU. Only national persons (including companies majority held by nationals) may export raw cashew nuts; however, processors are prohibited from exporting the raw cashew nuts they purchase. Imported cashew nuts are subject to a tariff of 20%.

(iv) Fisheries and aquaculture31

27. Mozambique has considerable potential for fisheries and aquaculture, due to its 6,942 km of coastline and its exclusive economic zone (EEZ) covering 493,672 km2. Mozambique classifies its fishery activity as industrial, semi-industrial (vessels under 20 metres in length), and artisanal. For 2007, the authorities anticipated an annual catch of 33,000 tonnes from industrial and semi-industrial activities, and 55,000 tonnes for artisanal activities. In 2007, aquaculture production was about 4,000 tonnes and the value of exports amounted to US$1 million. In 2005, Mozambique exported about 16,500 tonnes of fishery products, mainly to South Africa and the EC, and earned close to US$100 million (Table IV.4). Shrimp accounts for a substantial portion of export revenues earned from fishery products; certain Mozambican vessels and establishments meet the sanitary

26 INCAJU (2007). 27 Mozambique News Agency, AIM Report No. 331, 18 December 2006. Viewed at: http://www.

poptel.org.uk/mozambique-news/newsletter/aim331.html [29 June 2008]. 28 Mozambique News Agency, AIM Report No. 357, 21 April 2008. Viewed at: http://www.poptel.

org.uk/mozambique-news/newsletter/aim357.html#story8 [29 June 2008]. 29 Mozambique News Agency, AIM Report, No. 117, 8 September 1997. Viewed at: http://www.

poptel.org.uk/mozambique-news/newsletter/aim117.html [29 June 2008]. 30 Decree No. 33/2003 of 19 August 2003. 31 The principal sources for this section are: Alfonso (2004); and FAO (2005).


requirements of the EC, their main destination market.32 Foreign vessels fishing under bilateral agreements in Mozambican waters also provide compensation to Mozambique.

28. The Ministry of Fisheries has been responsible for the Government’s policy on fisheries and aquaculture since 200033; a new licensing and fishery management framework was adopted in 2003.34 According to the authorities, "the Marine Fisheries Regulation (REPMAR) is based upon modern management concepts and established the use of co-management in fisheries management, the obligatory use of devices to protect endangered species such as turtles (TEDs) and to reduce the by-catch, and, for the first time, the possibility to create artificial reefs".35 Fishermen must obtain a fishing licence. The use of TEDs became mandatory as from 2005.36 The National Fisheries Research Institute advises the authorities on fishery stocks, many of which are considered to be fully exploited, and the Ministry sets annual quotas for catches by species for the industrial and semi-industrial fleets. Other instruments used to manage stocks include closed seasons, limitations on the number of vessels, catch quotas, and mesh size regulations. Co-management practices are strongest in the industrial shallow-water shrimp fisheries. Artisanal fishing is also regulated; however, in practice, monitoring and enforcement along Mozambique’s long coastline are weak.

29. As noted, commercial aquaculture is a nascent activity. The regulatory framework for aquaculture defines norms and requirements for aquaculture farms; establishes procedures for their licensing; establishes restrictions on the importation of live animals to the be used in aquaculture; and addresses environmental issues such as the conversion of mangrove into aquaculture ponds.37

30. Using the ISIC definition, the fisheries subsector enjoys relatively high tariff protection of 18.5% (Table AIV.1).

31. Foreign vessels may fish in Mozambique’s EEZ only under bilateral agreements. The EC and Mozambique first concluded an agreement for shrimp and tuna fishing in 1998; this lapsed and was renewed in 2004, with a new five-year fisheries partnership agreement (FPA) taking effect on 1 January 2007.38 The FPA only covers tuna fishing, and allows 44 purse seiners and 45 long-liners belonging to EC states to fish in Mozambican waters, with an annual catch of 10,000 tonnes of tuna. These vessels must obtain a fishing licence from the Ministry of Fisheries, which is issued at the request of the EC. Revenues from licence fees are expected to reach €300,000 annually, and the EC has pledged annual compensation of €900,000.

32 The list of establishments that meet EC sanitary requirements may be consulted at:

https://sanco.ec.europa.eu/traces/output/FFP_MZ_en.pdf [30 June 2008]. The EC policy is outlined in Health and Consumer Protection Directorate online information, "Import conditions for fishery products". Viewed at: http://ec.europa.eu/food/international/trade/im_cond_fish_en.pdf [30 June 2008].

33 Law No. 3/90 of 26 September 1990. 34 Decree No. 43/2003 of 10 December 2003. 35 Alfonso (2004). 36 WWF (2004). 37 Decree No. 35/2001 of 11 November 2001. 38 Europa Press Release IP/06/1898, "EU and Mozambique initial new fisheries partnership

agreement", 22 December 2006. Viewed at: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/ 1898&format=HTML [30 June 2008].


Table IV.4 Exports of fishery products, 2002-07

2002 2003 2004 2005 2006 2007

Volume (tonnes) Lobster 100 21 30 10 4 8 Crab 110 435 192 324 235 170 Prawns 1,570 1,139 1,021 1,667 658 886 Fish 500 445 607 329 65 164 Shrimp catches 9,500 7,963 9,084 9,414 5,200 3,769 Shrimp aquaculture .. 435 214 1,017 228 168 Squid and octopus 100 85 203 165 30 4 Kapenta 2,034 2,757 5,149 3,615 2,020 1,177 Seaweed 0 0 92 36 .. .. Other 20 31 0 0 .. .. Total 13,534 13,312 16,591 16,577 .. 6,346 Export revenues (US$1,000) Lobster 1,100 230 334 117 44 83 Crab 330 1,301 575 972 705 510 Prawns 8,200 6,336 5,685 8,845 3,460 4,598 Fish 1,250 1,113 1,517 823 163 411 Shrimp catches 72,800 71,665 72,671 75,310 41,600 30,156 Shrimp aquaculture .. 3,915 1,286 6,106 1,368 1,010 Squid and octopus 250 212 506 414 75 10 Kapenta 2,441 3,309 6,179 4,337 2,424 1,766 Seaweed 0 0 110.4 43 .. .. Other 10 4 0 0.201 .. .. Total 86,381 88,085 88,864 96,966 49,839 38,544

.. Not available.

Note: Does not include catches under bilateral agreements on access to Mozambique's EEZ.

Source: Information provided by the Mozambican authorities. (v) Forestry39

32. Forests covered about a quarter of Mozambique’s land area in 2005, mainly open broadleaved forest, with substantial areas of savannah and scrubland. Farmers exploit forestry resources to obtain wood for fuel, which accounts for about 80% of the energy used by households, and also clear forests to expand land under cultivation. On a commercial basis, forests are exploited through the granting of "simple licences" (to Mozambicans only) or of concessions (to all persons). Logs are either exported in the rough or transformed into sawn timber. In 2005, the total log cut was 102,627 cubic metres, of which 51,000 cubic metres were exported in the form of logs, and the rest were exported after processing. Production is subject to royalties, which amounted to about US$6 million in 2005. Promotion of exports of processed forestry products is among the Government’s priorities. Hence, about 3 million hectares have been identified for plantation forestry.

33. Mozambique’s policy for the development of forestry and wildlife dates from 1997; the basic law, adopted in 1999, remains in place.40 The objective of forestry policy is the sustainable management of forestry resources in order to contribute to poverty reduction and to economic development. The last audit of forestry resources, which dates back to 1994 established that Mozambique had 20 million hectares of productive forest, 20 million cubic metres of commercial stock and an annual allowable cut of 500,000 cubic metres. Hence, this annual quota may be

39 The main source for this section is USAID (2006). 40 Law No. 10/99 of 7 June 1999.


excessive in relation to actual stocks. The administration of the forestry policy is the responsibility of the National Directorate of Forests and Wildlife, a unit of the Ministry of Agriculture. New regulations in 2002 introduced a prohibition on exports of Class 1 species (defined in Annex I of the regulations), reserving them for local processors, while permitting exports of precious tropical wood species, such as ebony and rosewood, and other species.41 The "simple licence", which is an annual logging permit for cuts up to 500 cubic metres, is available only to Mozambican nationals, and is issued by the provincial authorities. In principle, the licence requires a simplified plan to manage the forest. For other forestry operators, including foreigners, the 50-year concession (renewable) concerns the right to log a specified area, and in principle requires a management plan to ensure the sustainable management of the forests concerned, with logging permits issued annually in accordance with this plan; a condition of their grant is the pledge to establish a sawmill. Concessions are granted by the provincial authorities for areas of up to 20,000 hectares, and by the Ministry of Agriculture for areas between 20,000 and 100,000 hectares, a decision of the Council of Ministers is required for areas over 100,000 hectares. Concession-holders pay royalties per cubic metre of cut wood, assessed by species42; a 25% reduction applies if it is processed locally prior to export. In 2003, the Government signed the African Forest Law Enforcement and Governance (AFLEG) initiative, committing itself, internationally, to fight illegal logging, trade, and corruption, and to promote sound forest governance.

34. Using the ISIC definition, the simple average of the tariff on imported products in the timber subsector is well below the overall average, at 2.5% (Table AIV.1). VAT is also levied on timber (Chapter III(2)(iv)(b)).

(3) MINING, ENERGY AND WATER

(i) Mining, petroleum, and natural gas

35. Mozambique has considerable mineral resources including ilmenite (Corridor Sands and Moma projects), tantalite (Marropino and Morrua mines), coal (Chipanga IX and Moatize mines), bauxite, gold, and gemstones, which are exported without processing (Table IV.5).43 Exports of these products earned about US$5.3 million in 2007. Aluminium, Mozambique’s leading export, is produced by Mozal under the IFZ regime from imported alumina. In addition, Mozambique also produces natural gas, which is entirely exported via pipeline to South Africa and earned revenues of about US$69 million in 2007. Natural gas production has increased five-fold since the first TPR in 2001. Mozambique does not currently produce oil, but investment by companies in prospecting and exploring for oil and gas in northern and central areas has risen sharply since world market prices started to increase in 2003.44

41 Decree No. 12/2002 of 6 June 2002. 42 Table II, Decree No. 12/2002 of 6 June 2002. These are: Mt 2 million for precious tropical woods;

500,000 for Class 1; 300,000 for Class 2; 200,000 for Class 3; 100,000 for Class 4. Local communities are in principle to receive a 20% revenue share, but there appear to be difficulties in practice in the implementation of this requirement.

43 The main source on the state of resources is Yaeger (2005). 44 Mozambique News Agency, AIM Report, No. 316, 14 March 2006.


Table IV.5 Production of leading exported mining products, 2002-07

Product 2002 2003 2004 2005 2006 2007 Exports

2007 Exports

2007 (US$'000)

Natural Gas (million GJ) 2.4 2.5 49.7 89.0 102.2 104.5 100.5 53,249 Natural Gas (condensed) (bbl) 0 0 295,313 531,096 696,048 695,938 752,429 16,125 Coal (ton) 43,512 36,742 16,525 3,417 40,953 23,601 22,475 804 Bauxite (ton) 9,119 11,793 8,977 9,517 11,069 8,650 8,650 623 Tantalite (kg) 42,500 62,000 712,095 281,212 80,132 196,432 19,586 492 Bentonite (ton) 15,594 24,627 16,627 17,318 3,515 9,706 8,347 227

Source: Information provided by the Mozambican authorities. 36. All mineral substances found in the soil or subsoil or in the territorial waters of Mozambique are property of the State. Access to mining and petroleum (including natural gas) resources is regulated through the Mining Code (section (b) below) and the Petroleum Code (section (c)), introduced in 2002 and 2001, respectively. Approved mining and petroleum investment projects are eligible for customs duty and fiscal incentives under a revised framework introduced in 200745, replacing the Investment Code (Chapter II(4)). Prior to the change, certain export-oriented projects (e.g. Moma Titanium Sands Project) had obtained Industrial Free Zone regime benefits. Under the new regime, customs duty, VAT, and excise duty exemptions continue to apply to imported equipment, but new investment projects no longer obtain a reduction to the 32% tax rate applicable to profits.

37. In 2006, the authorities announced their intention to join the Extractive Industries Transparency Initiative (EITI), which concerns transparency of state receipts generated from natural- resource-based enterprises; Mozambique intends to formalize its candidacy in 2008.46

(a) Mining

38. Mozambique adopted a new Mining Code in 2002 and its regulations were revised in 2006.47 The Code covers the reconnaissance, prospection, exploration, mining, processing, and trade of useful mineral substances found in the soil or subsoil (including mineral water, with the exception of liquid or gaseous hydrocarbons, which are the subject of a separate regulatory framework). The Code is administered by the National Directorate of Mining (NDM), which operates a portal providing investors with information on Mozambique’s mining resources and policy framework.48 NDM also operates the Mining Cadastre, which records mining titles.

39. Under Mozambique’s mining regulations, foreign and national persons may apply for licences to engage in reconnaissance, or prospection and research, and may obtain mining concessions. Mining certificates for small-scale industrial mining activities are reserved to Mozambican persons (natural and majority-owned legal persons). Permits are reserved to Mozambican persons engaged in artisanal activity, in the areas set aside for this purpose. The Minister in charge of mining is responsible for granting licences, concessions, and certificates, while Provincial Governors are

45 Law No. 13/2007 of 27 June 2007. Regulations were issued in February 2008. 46 Information on Extractive Industries Transparency Initiative (EITI). EITI online information.

Viewed at: http://eitransparency.org/ [9 April 2008]. 47 Law No. 14/2002 of 26 June 2002 and its regulations contained in Decree No. 62/2006 of

26 December 2006. 48 Direção Naçional de Minas online information. Viewed at: http://www.dnm.gov.mz/

[28 June 2008].


responsible for issuing certificates to quarries to produce building materials, as well as granting permits to artisanal producers.

40. Application for a mining title is made to the NDM, is granted by the Minister, and mining titles granted or revoked are published in the Government Gazette (Boletim da Republica). A licence to engage in reconnaissance may be issued for areas of up to 100,000 hectares, and a licence to prospect and research for an area of up to 25,000 hectares. Maximum time-limits for title validity are set down in the regulations: up to two years, non-renewable for reconnaissance; and five years, renewable once for prospection and research. The time limits are set out in the mining concessions and certificates; they depend on the project, but are renewable. Applications for titles are subject to processing fees, with receipts shared between the State (60%) and the Mining Development Fund (40%); the latter assists small-scale artisanal mining.49 Title holders are required to observe the norms in force for the protection of the environment50, and an environmental impact assessment by the Ministry of the Environment is required; this varies according to the activity (e.g. prospection, construction or exploitation). The operations of title-holders are subject to inspection by the Ministry in charge of mining.

41. Title-holders are subject to surface and production taxes, which were increased in 2007.51 Taxes are assessed on the value of production: 10% for diamonds, precious metals and gemstones; 6% for semi-precious stones; 5% for basic mineral substances; and 3% for other mineral substances. Surface taxes vary according to type of mining title.52 Proceeds of surface and product taxes are to be shared with local communities; their share is allocated through the national budget.

42. The holder of a title to engage in prospection and research is allowed to export only mineral samples for analysis and testing abroad. Persons holding a mining concession, certificate or permit, may market and process the minerals they produce. Regulations were adopted in 2005 concerning licensing to purchase minerals from artisanal producers, for jewellery manufacture or onward sale to processors, or to purchase minerals from industrial mines to sell or process.53 The Bank of Mozambique regulates the commercialization of gold.

43. Average tariff protection for mining and quarrying is low (3.7%), as most activities, with the exception of salt mining (with a 20% tariff), are subject to tariffs of 2.5% to 7.5% (Table AIV.1).

(b) Petroleum and natural gas

44. Mozambique adopted a new Petroleum Code in 2001; its regulations were issued in 2004.54 Petroleum titles are granted separately for surveying (up to two years); exploration and production (eight years, renewable); and for oil or gas pipeline construction and operation (up to 30 years). All contracts take the form of concessions. In principle, concessions are publicly tendered, but directly negotiated contracts are possible under limited circumstances (e.g. to link adjoining concessions).

49 Decree No. 17 of 24 June 2005. 50 Decree No. 26 of 20 August 2004 and the Ministerial Diploma No. 189 of 14 December 2006. 51 Law No. 11/2007 of 27 June 2007 revoked Articles 27 to 31 of Law No. 14/2002 of 26 June 2002. 52 Article 16, Law No. 11/2007 of 27 June 2007. For prospection and research licences, the surface tax

rises from Mt 250,000/km2 in year one to Mt 3 million/km2 in years nine and ten. For mining concessions, the surface tax is Mt 2.5 million for years one to five, and Mt 5 million thereafter.

53 Decree No. 16/2005 of 24 June 2005. According to Article 8, the fees are: Mt 10 million for persons engaged in purchasing minerals from artisanal producers for jewellery manufacture; Mt 15 million for persons minerals from artisanal producers for onward sale to the processor; and Mt 25 million for a licence to engage in purchasing minerals from industrial mines to sell or process.

54 Law No. 3/2001 of 21 February 2001 and its regulations are contained in Decree No. 24/2004 of 20 August 2004.


Applications for a concession are made to the National Petroleum Institute, which makes recommendations to the Minister in charge. The Minister approves the award of the concession contract, which is published in the Boletim da Republica. The criteria for qualification and the application procedures are the same for national and foreign persons. Petroleum projects are subject to environmental impact assessments undertaken by the Ministry of the Environment.55

45. Title-holders are subject to production taxes, which were revised in 2007.56 Taxes are assessed on the value of production: 10% for crude petroleum; and 6% for natural gas. Proceeds of these taxes are to be shared with local communities; an allocation is set aside in the national budget. Operators of oil or gas pipelines are required to transport oil or gas produced by third parties on reasonable and non-discriminatory commercial terms. Operators of petroleum facilities and pipelines are required to procure goods and services by tender and grant a preference for locally produced goods and services, and observe safe working practices.

46. Mozambique's imports of refined oil products amounted to US$345 million in 2006.57 Mozambique’s National Oil Company (Empressa Nacional de Petroleos de Moçambique, PETROMOC), the state oil company established in 1997 to import and retail oil products, is undergoing restructuring in order to improve its efficiency and operational and financial performance.58 Imports are purchased exclusively by IMOPETRO, established in 1998 to take over the oil importing function of PETROMOC.59 PETROMOC continues to dominate the distribution of oil products in Mozambique, owning 20 of the country's 28 depots; the rest are owned by BP and Mobil. In addition, PETROMOC operates service stations across the country, accounting for about one third of the retail market in 2006, competing with BP, Mobil, Total, and other operators.60

47. The liberalization of downstream petroleum activities is in its initial stages, as the regulatory framework dates from 2006.61 Separate licences are required for: refining; the operation of port and storage facilities; transportation; distribution; and retail activities. A single operator may, however, hold several licences. The criteria for qualification and application procedures are the same for national and foreign persons. Licences are granted by the Ministry of Energy, upon application and payment of fees62, with the exception of the licences to engage in retail activities, which are granted by the energy authorities at provincial level; licences are indefinite provided their terms and conditions are observed.

48. PETROMOC has established a facility to produce biofuel from sugar cane. Imports of biofuels and of biofuel-containing fuel products appear to be prohibited under Law No. 63/2006.63

49. Fuel prices are set according to the regulatory framework for downstream petroleum activities adopted in 2006.64 Prices of fuel products are fixed and adjusted on a monthly basis by the Ministries

55 Decree No. 26 of 20 August 2004 and the Ministerial Diploma No. 189 of 14 December 2006. 56 Law No. 12/2007 of 27 June 2007 revoked Articles 24 and 25 of Law No. 3/2001 of

21 February 2001. 57 Ministry of Energy (2006). 58 IMF Country Report No. 07/36; and IMF Country Report No. 08/15. Viewed at:

http://www.imf.org/external/ [22 July 2008]. 59 Decree Nº1/97 of 28 January 1997. 60 Ministry of Energy (2006). 61 Law No. 63/2006 of 26 December 2006. 62 Article 19, Law No. 63/2006 of 26 December 2006. Fees are: Mt 250,000 for production, and the

operation of storage or port facilities; and Mt 350,000 for distribution. 63 Article 32 of Law No. 63/2006 of 26 December 2006. 64 Chapter V, Law No. 63/2006 of 26 December 2006.


of Energy, and of Planning and Finance. Prices are based on the c.i.f. price inclusive of customs duties and VAT, with regulated margins for the purchasing entities, distributors, and retailers, as well as adjustments for the costs of transporting fuel.

(ii) Electricity and water

50. Mozambique’s installed capacity is currently 2.357 GW, of which 90% is due to the majority state-owned Cahora-Bassa Hydroelectric Facility (HCB) in Tete province on the Zambezi river.65 Electricity of Mozambique (EDM), which holds a de facto monopoly on the transmission, distribution, and sale of electricity in urban areas, also has a small installed capacity to generate electricity. Private operator ENMo & Elgas produces electricity from natural gas. In 2006, electricity exports reached 12,825 GWh, while imports were 9,839 GWh, and domestic consumption was 9,418 GWh.66 Mozambique is a major supplier to the Southern Africa Energy Pool, exporting electricity to Zimbabwe and South Africa. Imports to supply the aluminium smelter Mozal accounted for 7,884 GWh in 2006, about 83% of that year's domestic consumption.67 Mozal’s electricity consumption has climbed steeply in recent years as its production capacity has expanded, raising associated imports. Imports of electricity enter duty free, but are subject to 17% VAT.

51. In 1997, the State issued the regulatory framework to liberalize the production, transportation, and distribution of electricity68; however, this is not being implemented as the electricity regulator, the National Electricity Council (Concelho Nacional de Electricidade, CNELEC), although established by law in 200069, has yet to become fully operational.70 Once established, this entity will be responsible for granting permits and concessions to operators, and also examining proposals for tariffs. Since 2003, the electricity prices charged by EDM, which differentiates between categories of consumers (social, domestic, agricultural, and general, plus large consumers), have been set with the use of a formula.71 Aluminium producer Mozal obtains a preferential tariff of US$0.01/KWh, compared to the price of US$0.09/KWh for other domestic users supplied by EdM, and this low price is one of the main reasons for the location of the smelter in Mozambique, as all alumina is imported. Specific fees apply to each connection.

52. The National Water Policy adopted in 1995 provided for the water subsector to be opened to private companies. In 1998, a new legal framework for the water subsector was adopted and several institutions were created to regulate the sector72: the Fund for the Investment and the Patrimony of Water Supply (Fundo de Investimento e Patrimonio do Abastecimento de Agua, FIPAG), which is the government body responsible for managing the water subsector; the Water Regulatory Council (Conselho de Regulaçao do Abastecimento de Agua, CRA), a body composed of three consumer reps nominated by the responsible Ministry, which sets the water tariff policy, upon proposals by FIPAG.73 After an international tendering process, in 1999 FIPAG granted a contract to Waters of Mozambique

65 The State obtained 85% of the facility from the State of Portugal in 2005 for US$950 million. The

balance remains held by the State of Portugal (ESKOM, undated). 66 Ministry of Energy (2006). 67 The main reason for Mozal’s imports of electricity is that Cahora Bassa, which produces most of

Mozambique’s electricity, is far away from Maputo, where Mozal is located. Thus, Mozal buys its supplies from the South African electricity grid, via ESKOM, while Cahora Bassa exports to neighbouring countries.

68 Law No. 21/97 of 1 October 1997. 69 Decree No. 25/2000 of 3 October 2000. 70 USAID (2006d). 71 Decree No. 29/2003 of 23 June 2003. 72 Decrees No. 72/98, 73/98, and 74/98 of 23 December 1998. 73 CRA online information. Viewed at: http://www.cra.org.mz [2 June 2008].


(Aguas de Moçambique, AdM)74, to manage the water supply services in five major cities (Maputo, Beira, Quelimane, Nampula, and Pemba). The delegated management contract (15 years for Maputo, and 5 years for the others) concerned the infrastructure, which remains government-owned, and collecting water fees. In 2004, the five-year management contracts were extended for further five-years, and additional cities were included; according to the CRA, water supplies for 11 cities were under delegated management contract in 2007, covering 3.3 million people, with an additional three cities under consideration. The Government’s current goal is to increase the water supply coverage rate to 60% in urban areas by 2009, reaching approximately 4 million people.

(4) MANUFACTURING

53. The contribution of manufacturing to GDP has fluctuated somewhat during the period under review, with a slight increase due principally to Mozal, an aluminium smelter project that started operating in 1999 and has since expanded its capacity (Chart IV.1).75 In 2005, the authorities estimated that two thirds of industrial activity was due to Mozal; however, the company’s contribution to sectoral employment appears to be low, as it employed only 1,000 workers in 2005. Aluminium is Mozambique’s leading export, earning revenues of US$1.48 billion in 2007, up 5.6% over the 2006 level. This project was established under Mozambique’s Industrial Free Zone (IFZ) Regulation, which provides fiscal and border tax exemptions for export-oriented projects (Chapter III(3)(vi)); several industrial projects in Mozambique are under the IFZ regime, including Mozal, Moma (ilmenite), and a number of textile manufacturing and tyre companies. Industrial activity outside the IFZ regime consists mainly of the manufacture of sugar, flour, beer, mineral water, cement, soap, certain galvanized steel products, and cigarettes, mainly supplying the domestic market, although exports of sugar, beer, and cement are significant. About 90% of companies operating in the manufacturing sector are micro enterprises (with less than 25 employees).

74 Owned by Saur International (38.5%), IPE-Aguas de Portugal (31.5%), and Mazi-Mozambique

(30%), a national consortium of investors. PR Newswire, "Saur International signs Water Supply Contract in Mozambique". Viewed at: http://www.prnewswire.co.uk/cgi/news/release?id=35452 [1 July 2008].

75 Mozal 1, the US$1.34 billion development launched in 1998, was the biggest single investment project ever undertaken in Mozambique. It opened on 29 September 2000. The Mozal 2 expansion project, approved in June 2001, increased the output of the smelter from 253,000 to 506,000 tpa of primary ingots. BHP Billiton is Mozal’s operator and has a 47.1% interest in the joint venture. The other partners are: Mitsubishi Corporation (25%), Industrial Development Corporation of South Africa Limited (24%), and the Government of Mozambique (3.9%). BHP Billiton online information. Viewed at: http://bhpbilliton.com/bb/ourBusinesses/aluminium/ mozal/aboutMozal.jsp [10 July 2008].


54. Mozambique’s industrial development policy, adopted in July 2007, identifies a number of constraints facing the development of manufacturing, including: obsolete plant and equipment; inadequate supply of skilled labour; imported products, that are not subject to the customs duties and taxes designed to protect the local product; high costs of inputs, transportation, and credit; irregular supply of electricity and water; high reliance on imported inputs; and the low levels of standardization (Chapter III(2)(vi)).76 An additional constraint to industrial development is that Mozambique requires all companies or persons wishing to undertake an industrial activity to obtain a licence from the Ministry of Commerce77; instead of requiring licences only for business activities that pose a significant risk to safety, health, or the environment.78

55. The Mozambican authorities recognize that the trade liberalization to which it is committed under SADC and the EPA with the EC will reduce to zero the protection granted to domestic producers in the medium-term, exposing their industries to more competition. As regards development opportunities, the authorities are targeting agri-food businesses, furniture, building materials, chemicals, and recycling. The Government also continues to promote large-scale industrial projects (Chapter II(4)), and supports capacity-building for companies to be able to better identify market opportunities and the means to satisfy them.

56. Generally speaking, the authorities consider the tariff primarily as an instrument to generate fiscal revenues, but they are also prepared to use the tariff as an instrument of industrial policy and job creation (Chapter II(2)). Tariff protection in the manufacturing sector stood at 10% (ISIC) in 2008, just below the overall average of 10.1%; however, tariff protection ranges from 0 to 20% depending on the activity (Table AIV.1). For instance, the manufacture of beverages, foodstuffs, and cigarettes

76 Ministry of Industry and Commerce, (2007). 77 Decree No. 39/2003 of 26 November 2003. 78 FIAS (2006).


is given average MFN tariff protection of 16.2%, with a large number of products subject to the maximum rate of 20% (Table AIV.1). This tariff structure does not encourage investment, particularly in agri-food industries, targeted by the Government for further development, because high tariff protection increases the cost of imported inputs. Furniture manufacturing, another industry targeted by the authorities, also has above-average tariff protection (18.9%), and this is true of textiles (15.5%) and manufacturing of clothing (19.4%), which the authorities are intent upon promoting. Moreover, imported manufactured products that compete with locally manufactured products are subject to surtaxes, in addition to the customs duties, as in the case of sugar, cement, and certain galvanized steel products. Cement and certain galvanized steel products are major inputs in Mozambique’s megaprojects, one of the pillars of the Governments industrial policies; these megaprojects have stimulated demand for imports of building materials and cement, which accounted for 10% of total imports in 2007 (Chapter I(3)). However, the protection granted to both cement and galvanized steel products increases the costs of such materials. Imported manufactured products are also subject to VAT at 17% and, some, including alcoholic beverages and tobacco products, to excise taxes (Chapter III(2)(iv)).

(5) SERVICES

(i) Financial services

(a) Banking and micro-finance services

57. The banking and micro-finance services subsector comprises: nine commercial deposit banks, with majority-foreign capital79; three micro-financing banks80; five credit unions; 20 foreign exchange bureaus; and 20 credit service providers.81 Privatization in the 1990s reduced the Government’s role to that of a minority stake-holder. According to the Bank of Mozambique, the largest banks operating in the market are the Banco Internacional de Moçambique (BIM), Banco Comercial e de Investimentos (BCI), Standard Bank and Banco Austral, with 88.9% of the total assets, 91.6% of total deposits, 86.9% of total loans, and 76.4% of the total capital of the banking system, resulting in high levels of concentration in the banking subsector (Table IV.6).82 The Bank of Mozambique notes that of Mozambique’s 128 districts, only 33 have bank branches (26 at the end of 2006), demonstrating the low, but increasing, penetration of financial services in the countryside. This increasing penetration is in part due to relaxed reserve requirements on credit institutions extending their services to rural areas.

58. In 2003, an assessment of the financial sector revealed that the operation of the banking subsector was affected in 2002 by the high level of concentration of loans (five banks accounted for 96% of total deposits), increasing level of dollarization, a low degree of financial intermediation, a high share of loans made to state-owned enterprises, high real lending rates, low loan to deposit ratio (50% in 200683), and a high share of non-performing loans.84 In 2006, a further assessment indicated that access to affordable finance remained an outstanding constraint on business activity and 70% of

79 Banco Internacional de Moçambique, Banco Austral, Standard Bank, Banco Comercial e de

Investimentos, Banco Internacional de Comércio, SARL União Comercial de Bancos (Moçambique), African Banking Corporation, Banco de Desenvolvimento e Comércio and Banco Mercantil e de Investimento.

80 Socremo – Banco de Microfinanças, Novo Banco and Banco Oportunidade de Moçambique. 81 For information on financial service providers, see Banco de Moçambique online information.

Viewed at: http://www.bancomoc.mz/ index.php?menu=T11&lang=po [2 June 2008]. 82 Banco de Moçambique (2008). 83 KPMG (undated). 84 IMF (2007c).


enterprises did not have access to a bank loan or overdraft facility, and the access of the agriculture sector to credit in particular remained low.85

Table IV.6 Banking sector indicators, 2006 (Mt million)

Assets Loans Deposits Net profit (loss) Return on average equity

BIM 24,670,763 10,780,971 20,835,941 1,156,492 65.2 BCI Formeto 14,038,177 7,666,881 10,510,073 512,003 47.9 Standard Bank 3,379,746 3,119,533 11,329,944 452,300 41.7 Banco Austral 6,353,686 1,262,493 4,395,812 7,609 2.1 African Banking Corporation 1,641,505 525,850 1,047,988 58,244 28.2 BDC 1,535,110 923,584 1,090,746 82,696 47.9 UCB 1,214,791 872,883 845,337 36,709 14.5 BIC 444,414 138,511 320,768 9,162 11.9

BMI 390,403 118,257 256,324 (12,406)a -20.7

a Represents net loss.

Source: KPMG (undated), Banking Survey 2006. Viewed at: http://www.kpmg.co.mz/en/destaques/pesquisa_sobre_o_ sector_banc_rio_em_mo_ambique.

59. Banking and micro-finance activities are subject to the banking law86; several major changes were made to the law in 200487, concerning credit institutions and financial services, and micro-finance banks88, and in 2007 concerning the bankruptcy of credit institutions and a law on the national payments system. Under the new regime, these regulations are administered by the Bank of Mozambique; previously, the Ministry in charge of finance had responsibility for managing the development of branches of credit institutions and financial services. The Bank of Mozambique also exercises supervisory activities, and these have been strengthened through capacity-building. Since 2008, the Bank of Mozambique, uses the framework of Capital Adequacy, Asset Quality, Management, Earnings and Liquidity (CAMEL) to determine the soundness of banks and guide its supervisory activity. As from 1 January 2008, Bank of Mozambique has required the credit institutions to observe the norms of the IFRS in order to increase transparency to international levels. The new law provides for a fund to be established to guarantee deposits.

60. Mozambican specific service commitments under the GATS concern only banking and other financial services (excluding insurance), in all four modes of supply. Foreign financial service providers (including insurance) can operate in Mozambique as long as they abide by the domestic rules and regulations governing investment and operations of such institutions.89

85 It was 12% in May 2008. For the composition of credits in May 2008 see Banco de Moçambique

online information. Viewed at: http://www.bancomoc.mz/index.php?menu=4312&lang=po&id=2294 [20 July 2008].

86 Law No. 15/99 of 1 November 1999. For information on Mozambique’s banking and micro-finance regulations, see Banco de Moçambique online information. Viewed at: http://www.bancomoc.mz/index.php? menu=T15&lang=po [20 July 2008].

87 Law No. 9/2004 of 21 July 2004. 88 Decree No. 57/2004 of 10 December 2004. 89 WTO document GATS/SC/58, 15 April 1994.


(b) Insurance services

61. Since Mozambique’s first TPR in 2001, the regulatory framework governing insurance services has changed with the introduction of the Insurance Law and other regulations.90 As a result of this regulatory change foreign investment in the insurance sector was allowed; and the provision of life and non-life-insurance was separated (i.e. an insurance company may only provide one type of insurance). The insurance industry is regulated by the General Insurance Inspectorate under the tutelage of the Ministry of Finance, which receives applications for insurance service providers. Companies wishing to offer insurance services must establish as public limited companies and comply with the law governing the sector. Since 2006, the minimum capital requirements have been Mt 67 million for life insurance and Mt 33 million for non-life insurance. The requirements for setting up an insurance company, including capital requirements, are the same for foreign and Mozambican insurers. Insurance companies, with exception of those incorporated in another jurisdiction, need to be incorporated as a company in Mozambique and obtain a special registration to conduct insurance business. To obtain this registration, authorization to operate in Mozambique is required from the Ministry of Finance, as well as a licence from the General Insurance Inspectorate. Foreign investors may file their application through the CPI and may obtain incentives under the Code of Fiscal Benefits. In general, risks cannot be covered by non-resident companies, unless the companies established in Mozambique deem that the risk is too high. However, the purchase of an insurance abroad need to be approved by the General Insurance Inspectorate. Insurance providers are free to set their own premiums and rates, except for compulsory insurance, which comprises civil liability for owners of motor vehicles, introduced in 200391, and occupational health insurance, which are regulated by the Inspectorate.

62. All insurance companies are required to maintain solvency margins based on premiums, claims, and liabilities as stipulated in the Regulation.92 In order to ensure that solvency and prudential standards are observed, insurance companies must submit annual balance sheets to the Inspectorate to be audited. If the established limits are not respected the Inspectorate will warn the company. The law allows for the imposition of sanctions when the limits and prudential regulations are not followed; however, no such sanctions have been imposed since 2003.

63. In 2007, there were five insurance companies operating in the sector, which remains dominated by Seguradora Internacional de Mozambique (SIM) and Empresa Moçambicana de Seguros (EMOSE) (formerly fully state owned)93, with some 65% of the market (Table IV.7).94 Only SIM and EMOSE offer both life and non-life insurance because they were established prior to 2003 when the Insurance Law came into force. EMOSE is the only company that is fully Mozambican owned, while Global Alliance is totally foreign owned; the other companies operating in Mozambique are of mixed capital.

64. Reinsurance services, which are not available in Mozambique at the time of its previous TPR, have been available domestically since 2007. They are provided mainly by ZIMRE; EMOSE's market share is almost negligible. Re-insurance services may be purchased abroad.

65. Mozambique made no specific commitments on insurance services under the GATS.

90 Law No. 3 of 21 January 2003. 91 Law No. 2/2003 of 21 January 2003. 92 Regulation 42/2003 of 10 December 2003 and Ministerial Diploma 112/2004 of 23 June 2004. 93 The State still owns 80% of the EMOSE and the remainder is owned by the workers (information

provided by the authorities). 94 Global Alliance Seguros (2007).


Table IV.7 Insurance market shares, 2004-07 (Per cent)

Company Type of insurance 2004 2005 2006 2007

EMOSE Life and non-life 28.0 31.7 28.0 28.7 SIM Life and non-life 42.2 34.7 35.5 36.9 Global Alliance (GA) Non-life 18.3 22.7 22.3 18.7 M.C. de Seguros Non-life 2.0 2.4 2.8 2.8 Hollard Non-life 9.4 8.5 11.4 12.8


(ii) Telecommunications and postal services

66. The telecommunications subsector of Mozambique comprises: the incumbent, Telecomunicacoes de Moçambique, E.E. (TDM)95; two mobile telephone companies, Mozambique Cellular (mCel), which was established in 1997, is wholly owned by the State and claims 70% of the market96, and Vodacom Mozambique, which started operating in 2003; 18 data transmission and internet operators; as well as 10 internet service providers (ISPs), which resell TDM’s internet access products. As a result of the growth in mobile telephony, teledensity has increased sharply in Mozambique since 2001 to reach 15.6 lines per 100 inhabitants in 2007 (Table IV.8). Access to the Internet, however, which depends on a fixed-line (only 78,000 in 2007, down from 87,291 in 2001), a satellite link or WiMax, is still low, and expensive.

Table IV.8 Telecommunications service indicators, 2001-07

2001 2002 2003 2004 2005 2006 2007

Fixed lines 87,291 87,367 77,576 75,256 65,992 70,313 78,000 Mobile telephones 89,000 170,000 470,000 610,473 1,503,943 2,339,317 3,079,783

Total subscribers 176,291 257,367 547,576 685,729 1,569,935 2,409,630 3,157,783

Teledensity (lines per 100 inhabitants)

0.5 0.9 2.6 3.4 8.4 12.6 15.6


67. TDM holds the single licence to supply fixed-line telephony, which expires in 2028. Its exclusivity concerns the supply of fixed-line telecommunications network services (telephone lines), customer premises equipment, local and long-distance (national and international) calls. Since 1999, the Government had been planning to sell a stake in TDM to a strategic investor, with its monopoly preserved for five years thereafter; however, this sale has been postponed indefinitely.97 TDM’s telecommunications infrastructure consists of a national backbone, covering all provinces up to the district level, which it is extending.98 This network is a combination of different technologies, including VSAT, wireless loop, copper cable, and a 5 Gbps marine fibre optic cable along the coast. MCel's and Vodacom's GSM mobile networks cover mainly urban areas, but both are expanding

95 TDM online information. Viewed at: http://www.tdm.mz/ [16 July 2008]. TDM is owned by the

State (80%) and its employees (20%). 96 MCel (2006). 97 Pinter (2003). 98 Partnership for Higher Education (2003).


coverage to rural areas. MCel was awarded a licence to operate a 3G service in 2006, which will enable it to offer high-speed broadband data services.99

68. A new telecommunications law was adopted in 2004100, to guide the liberalization of the fixed-line subsector; it specified 31 December 2007 for the end of TDM’s exclusivity over fixed-line telephony, as the authorities hope to attract other fixed-line telephony operators.101 The Instituto Nacional das Comunicações de Moçambique (INCM), established in 1992, is the independent regulator for telecoms, postal, TV, and radio services in Mozambique, and is under the technical responsibility of the Ministry of Transport and Communications (MTC).102 INCM's responsibilities include the licensing and registration of service providers103, spectrum management, the national numbering plan, and setting regulated tariffs. Licence fees are one-off and licensees are also subject to an annual turnover tax, of up to 3% (with the exception of ISPs); receipts from the turnover tax are shared between the Government (55%) and INCM (45%).104 Use of the spectrum is also subject to annual charges.105 INCM is also responsible for issuing homologation certificates to equipment used for telecommunications activities, including handsets, subject to the payment of stamp taxes.

69. Licences contain universal service access obligations that are proportional, transparent and non-discriminatory.106 The supply of universal basic services is financed through a special fund, the Universal Access Fund107, financed by a levy of 1% of the annual turnover of licence holders and registered service providers.108 Mobile telephony licences are awarded through a bidding procedure. INCM sets the interconnection tariffs for TDM, MCel, and Vodacom on the basis of long-run incremental costs.109 Mozambique did not take part in the extended negotiations on telecommunications services at the WTO.

70. Postal services in Mozambique are provided by Correios de Moçambique (CDM).110 Two delivery services are operated in the country; one using post office boxes, which are available at all post offices for an annual rental fee, and the other is by house delivery. Delivery times are variable, but CDM has introduced a service called Correio Azul, which is speedier than basic services. CDM has a monopoly of reserved postal services (universal mail services and postal financial services), and offers financial services, aimed at the micro-finance market and the payment of pensions. A number of private operators have been given licences to offer express mail services in urban areas (for example, DHL), in addition to those proposed by CDM.

99 Cellular News, "3G Contract Signed in East-African Nation of Mozambique", 29 January 2008.

Viewed at: http://www.cellular-news.com/story/28923.php [17 July 2008]. 100 Law No. 8/2004 of 21 July 2004. 101 Article 70, Law No. 8/2004 of 21 July 2004. 102 Decree No. 32/2001 of 6 November 2001. 103 Licensing categories include: fixed telephony; mobile telephony; data transmission and Internet;

cable television; and radio. Registration concerns Internet access service providers (ISPs). 104 Decree No. 64/2004 of 29 December 2004. 105 Decree No. 63/2004 of 29 December 2004. 106 Article 39 of Law No. 8/2004 of 21 July 2004. 107 Decree No. 69/2006 of 26 December 2006. 108 Ministerial Diploma No. 79/2007 of 11 June 2007. 109 Resolution No. 13 CA/INCM/20007 of 19 December 2007 sets out the termination rates for TDM,

MCel, and Vodacom for 2008 and 2009. The regulation on interconnection is contained in Decree No. 34/2001 of 1 November 2001; it makes reference to the Fourth GATS Protocol on Basic Telecommunications Services.

110 UK Trade & Investment online information. Viewed at: https://www.uktradeinvest.gov.uk/ukti/ appmanager/ukti/countries?_nfpb=true&portlet_3_5_actionOverride=%2Fpub%2Fportlets%2FgenericViewer%2FshowContentItem&_windowLabel=portlet_3_5&portlet_3_5navigationPageId=%2Fmozambique&portlet_3_5navigationContentPath=%2FBEA+Repository%2F324%2F226685&_pageLabel=CountryType1 [10 October 2008].


(iii) Transport

(a) Maritime transport, ports, and railway services111

71. Mozambique is served by four shipping companies, of which one is Navinter, the privatized state enterprise. Maritime transport is through the three main commercial ports: Maputo, Beira, and Nacala. Apart from containers, the main commodities handled in Maputo are coal, alumina (imported) and aluminium (exported), ferro-chrome, cereals, and sugar; Beira handles mainly cereals, granite, fuel, fertilizers, and ferro-chrome; while Nacala handles mainly fuel, clinker, and fertilizers. Between 2001 and 2006, the volume of freight handled through these ports increased (Table IV.9). As Mozambique is a strategic gateway to neighbouring countries, each port is linked to a rail and road transport "corridor", established on the basis of bilateral transport agreements, including with landlocked Zimbabwe, Malawi, and Zambia. Trucks and railway links are used to transport the mineral production to these ports, for onwards shipping. The National Railway System (Caminhos de Ferro de Moçambique, CFM) consists of three subsystems: CFM-South, CFM-Centre and CFM-North. CFM-South, the main railway line, carried 1.5 million liquid tonnes of cargo in 2007, while CFM-Centre carried just 290,000 liquid tonnes and CFM-North carried 114,000 liquid tonnes.112

Table IV.9 Port traffic, 2001-06

Port 2001 2002 2003 2004 2005 2006

Maputo 4,002 4,423 5,035 5,540 6,382 6,609 Beira 2,356 2,762 2,323 2,274 2,419 2,653 Nacala 743 780 808 909 876 950 Quelimane 133 164 177 217 243 219 Pemba 78 71 67 78 78 105 Total 7,312 8,200 8,410 9,018 9,998 10,536


72. The Ministry of Transport and Communications (MTC) is responsible for national policy in maritime transport and port services, as well as railways. The Mozambique Ports and Railways Authority (CFM) is the state-owned enterprise in charge of the State’s port and railway infrastructure. Since 1995, Mozambique has granted concessions to private companies to operate its principal port terminals, including the Maputo container, sugar, and citrus terminals, the Matola coal and container terminals, and the container and multipurpose terminals at the Port of Beira. This approach led to the grant of concessions to operate the ports and railways infrastructures in three segments (north, central, and south) to joint ventures formed between CFM and consortia of private companies. The port of Maputo has been operated by the Sociedade de Desenvolvimento do Porto de Maputo, since 2003 under a 15-year concession (renewable), in a joint venture with a private operator.113 The joint venture includes the management of the Maputo sugar and produce terminals, and the Matola coal

111 This section is based on: CFM (2006); and Bila, Chambal, and Tamele. (2007). 112 CFM-South: Maputo-South Africa (Ressano Garcia Line, 88 km), Maputo-Swaziland (Goba Line,

71 km), and Maputo-Zimbabwe (Limpopo Line, 534 km); CFM-Centre: Beira-Zimbabwe (Machipanda Line, 318 km); Dondo–Moatize (Sena line, 545 km); CFM-North: Nacala-Malawi (Nacala Corridor Line, 610 km), Cuamba–Lichinga (Lichinga Line, 626 km).

113 See Porto Maputo online information, "Joint Announcement of Operations", 24 March 2003. Viewed at: http://www.portmaputo. com/news/portnews0324.htm. CFM owns 49% of the joint venture and a consortium of private companies holds 51% (Mersey Docks and Harbour (18.3%); Skanska (16.33%); Liscont (14.84%); Mocambique Gestores (1.53%)). The consortium pledged to invest US$57 million in the port. Mozambique News Agency, AIM Report No. 192, 9 October 2000. Viewed at: http://www.poptel.org.uk/mozambique-news/newsletter/aim192.html#story6 [10 July 2008].


terminal. CFM continues to operate the oil and grain terminals, as well as CFM-South portion of the railway system. Since 1998, the container and general cargo terminals at the port of Beira have been operated by Cornelder de Moçambique (CdM), a semi-private company114, and the Companhiados Caminhos de Ferro da Beira (CCFB) has operated CFM-Centre since 2004 under a 25-year concession.115 For Nacala, the port and railways infrastructure is under a 15-year concession (since 2005) to Corredor de Desenvolvimento do Norte, a project that integrates the Central East African Railway System to the Malawian railway infrastructures.116 The National Institute for Hydrography and Navigation (INAHINA) manages the navigation aids system, including the operation, maintenance, and information systems.

(b) Road transport

73. Given its position as a transportation gateway to southern Africa, the rehabilitation and development of Mozambique’s road transport links have played a central role in the Government’s development plans since the advent of peace in 1992.117 According to the authorities, Mozambique has 17,800 km of classified road, of which 5,083 km are paved. The authorities estimate that 88% of the paved network and 52% of the unpaved network are in good or fair condition.118 Mozambique has one toll road linking Maputo with Witwatersrand in South Africa.119

74. The Ministry of Public Works and Housing has overall responsibility for the road network. Under the Integrated Road Sector Programme (Programma Integrado do Sector de Estradas, PRISE), which covers 2007–11, the Government continues to prioritize the expansion of links to agricultural areas, securing access to ports, upgrading corridors to neighbouring countries to encourage industrial investment, improving the coastal road network to stimulate development of tourism, as well as improving the main north-south road that runs from Maputo to Pemba.120 Since 2003, this strategy has been implemented by the National Administration of Roads (Administração Nacional de Estradas, ANE)121, whose responsibilities include planning the development and maintenance of the public roads system, implementing national roads programmes, recommending projects to be financed, and examining and proposing administrative and technical regulations for roads. ANE has decentralized road-building and maintenance to district level, exercising a supervisory function. PRISE will costs US$1 billion, and will be financed with public funds (from the Road Fund (21%) and other public funds (11%), and 68% from official aid). The Road Fund was separated from ANE in 2003 to improve both the financial and executive functions, and is financed by border taxes for the use of

114 CFM owns 33% of the company and Cornelder Holding owns 67%. The smaller port of Quelimane

is also managed by the same operator under a joint venture, Cornelder Quelimane, of which 49% is held by CFM and the remainder by Cornelder Holding (Sturrock Shipping online information, "Port of Beira". Viewed at: http://www.sturrockshipping.co. za/upload/saport/file/9_07_PORT_OF_Beira.pdf [10 July 2008]).

115 CCFB is 49% owned by CFM, with the rest owned by the Indian companies RITES (26%) and Ircon (25%). Jane's online information, "Beira Railway Company (CCFB)". Viewed at: http://www.janes.com/ extracts/extract/ jwr/jwr_ a361.html [10 July 2008].

116 CFM owns 49% of the joint venture. For information on the project, see: http://www.portodenacala.co.mz/eng/index.php [10 July 2008].

117 DFID (2006). 118 The unclassified road network is estimated to be 20,000 km; it was due to be mapped in 2007. 119 In 1997 the concession contract was signed between the Republic of Mozambique, the Republic of

South Africa, the South-African Roads Board and TRAC Trans African Concessions (Pty) Ltd. 120 For information on the Roads and Bridges Management and Maintenance Project (RBMMP), phases

I and II, spanning 1992-99 and 1994-2003 respectively, see: http://web.worldbank.org/WBSITE/ EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:21274208~menuPK:3266877~pagePK:51236175~piPK:437394~theSitePK:73154,00.html [18 July 2008].

121 ANE online information. Viewed at: http://www.ane.gov.mz/[18 July 2008].


national roads, as well as taxes on petroleum products. Some 11% of budgetary expenditure in 2006 was allocated for government investment in roads.

(c) Air transport and airport services

75. Liberalization of air transport in Mozambique, which dates from 1998, provided for competition to the state-owned airline, Linhas Aereas de Moçambique (LAM), on domestic routes.122 A new policy governing civil aviation was adopted in 2007 (replacing the 2002 policy)123, to support the development of the transport and tourism subsectors. Since 2001, policy-making and the technical regulation of the sector are the responsibility of the Instituto de Aviação Civil de Moçambique (IACM).124 The IACM manages the national air space, airports, and airfields, and administers safety standards. It negotiates Mozambique’s bilateral agreements on air transport, and grants operating licences and other documents required for air carriers and suppliers of services at airports and airfields.125

76. Only TAP (of Portugal) operates an intercontinental direct flight to Mozambique, while the state-owned airline, Linhas Aereas de Moçambique (LAM) operates only on regional routes. With the exception of flights originating in Lisbon, other flights from Europe and the United States to Maputo are routed through Johannesburg in South Africa, and hence are more expensive than flights to other destinations in the region; this is a constraint to industrial and tourism development.126 LAM lost its exclusive rights to serve the five main cities of Mozambique in 2002127, and licensed competitors entered the market, offering the same routes for much lower prices.

77. International air travel is provided for under bilateral agreements. Mozambique’s agreement with Portugal provides for a single national carrier to be nominated by each party, and specifies routes and their frequency, for a term of ten years. Mozambique signed a bilateral agreement with France in 1991, which allows for two weekly frequencies between Paris and Maputo but it is not being implemented because of lack of demand. Mozambique’s bilateral agreement with South Africa, last revised in 2003, allows only one carrier per party to fly between Maputo and Johannesburg: LAM and South African Airways (SAA). The agreement allows South African carriers to fly from specific points in South Africa to Beira, Maputo, Nampula, Pemba, and Vilanculus. All the recent agreements provide for the first four freedoms, but since the authorities adopted a new air transport policy in December 2007, they intend to include the fifth freedom, and accordingly revise bilateral agreements. Mozambique has also signed the 1988 Yamoussoukro Declaration and the SADC Protocol, both of which provide for granting of Fifth freedom rights.128 None of the bilateral agreements authorizes domestic cabotage. The air transport regulatory framework in Mozambique appears to limit competition in the industry; the policy of single-designation affects the supply of seats, reduces flexibility in scheduling, increases price, and reduces service quality. The country’s civil aviation policy is largely focused on protecting the national carrier (LAM), rather than supporting the industry’s overall development. As a result, it is difficult to create a business climate that is conducive to attracting tourists when air travel accounts for close to 40% of the trip’s expenditure.129

122 USAID (2006c). 123 Resolution of the Council of Ministers No. 40/2002 of 14 May 2002. 124 Decree No. 41/2001 of 11 December 2001. 125 Decree No. 39/98 of 26 August 1998. 126 IFC (2006). 127 Mozambique News Agency, AIM Report No. 232, 20 May 2002. Viewed at: http://www.poptel.

org.uk/mozambique-news/newsletter/aim232.html [10 July 2008]. 128 IFC (2006). 129 IFC (2006).


78. Mozambique has three international airports and 19 national ones, and 386 airfields. The international airports are at Maputo, Beira and Nampula. Airport services are supplied by the state-owned enterprise Aeroportos de Moçambique (ADM), under an exclusivity regime (it can however contract out services itself), and are under expansion. ADM sets the rates for its services subject to approval by the Ministry of Transport and Communications (MTC). Among its sources of revenues are a departure tax of US$20, if the destination is outside Africa, and of US$10 if the destination is within Africa.

(iv) Tourism

79. Mozambique’s tourism potential is largely untapped (in relation to other destinations in the Indian Ocean)130, but is developing rapidly.131 Tourism is attracting substantial levels of foreign direct investment, with close to US$1 billion in investment projects approved in 2007 (Table IV.10), including four- and five-star luxury hotels. Mozambique has a capacity of 17,035 beds, of which 2,879 are in four- and five-star hotels, and 3,197 in three-star hotels. The number of tourists has risen by 40% since 2002, many from South Africa132, and the authorities report rising revenues, from US$64 million in 2002 to US$157 million in 2007. The capital city of Maputo attracts about 55% of nights spent by national and international visitors, mainly due to business tourism as well as visits from family and friends. Other areas of Mozambique attract tourists seeking discovery tourism, and adventure sports, and eco-tourists.

Table IV.10 Tourism indicators, 2002-07

2002 2003 2004 2005 2006 2007

International tourism arrivals (thousands) Business 222 141 131 175 310 351 Leisure 210 187 254 275 214 261 Family 109 113 85 128 140 159

Total 541 441 470 578 664 771 Investment projects

Proposals 116 115 116 169 169 171 Acceptances 68 80 55 95 105 133 Share of proposals accepted (%) 58.6 69.6 47.4 56.2 61.9 78.0 Rooms built 590 857 1,855 2,704 2,855 8,040 Jobs created 530 1,191 1,922 2,232 3,896 17,936

Total investment (US$ million) 65.1 51.9 67.2 83.7 604.2 977.2


80. Mozambique has three principal tourism zones: in the South, including Maputo and four major national parks; in the Centre, where hunting attractions and the Gorongosa National Park are located; and in the North, where eco-tourists are attracted to Pemba’s spectacular beaches, coastal and marine resources, and the Niassa Reserve (on the border with Tanzania). Mozambique has progressively placed 31% of its land surface under conservation; this consists of six national parks

130 The direct contribution of tourism to Mozambique’s economy was estimated by the authorities at

2.5% of GDP in 2003. In comparison, tourism’s share of GDP is about 6.9% on average in sub-Saharan Africa, 8% in South Africa, and 10.2% worldwide (IFC, 2006).

131 USAID (2004). 132 South African's are the only tourists who do not require visas for holiday visits; but visas are

required for business visits. According to the IFC, competing countries like Brazil, Cape Verde, Mauritius, Seychelles, and Maldives allow visa-free entry to Portuguese, other EC and U.S. tourists, while Mozambique requires a visa in all cases (IFC, 2006).


and six natural reserves, which are state-managed, as well as 12 hunting reserves (coutadas), and 13 game farms, which are privately managed. Receipts from taxes and entrance charges to national parks or natural reserves are shared between the Central Government and local communities (received a share of 20% in 2006 and 2007). However, much of the tourism infrastructure in place in the hinterland prior to independence has fallen into disrepair and many of these tourism destinations lack appropriate amenities. In addition, other barriers to Mozambique’s tourism development include expensive intercontinental air fares, limited internal transport services, and onerous visa requirements.133

81. As was the case at the time of the first TPR, rebuilding the tourism industry retains a central role in the Government’s development plans. Since 2000, the Ministry of Tourism has managed all aspects of the policies applying to investment in the activity, including: the management of conservation areas; project appraisal and approval, upon referral of the CPI if fiscal benefits are sought; the provision of permits to use land, as the ownership of all land is reserved to the State; and promotional activities. A new Tourism Policy and Implementation Strategy financed by official development aid, was adopted in 2003134; it integrates local decision-makers in tourism projects, emphasizes their poverty reducing potential, and continues to aim at the sustainable management of natural resources. This was followed by the Strategic Plan for the Development of Tourism in Mozambique in 2004, covering 2004-2013. This plan focusses on developing iconic tourism products, with strong marketing and promotional potential to attract targeted tourism. The Government has identified priority areas for tourism investment (PATIs)135, in most instances overlapping with conservation areas, transfrontier conservation areas (TFCAs), and tourist routes, in an integrated spatial plan, which takes into account Mozambique’s transport infrastructure.

82. Investment in tourism is covered by the Investment Code, and incentives are provided under the Code of Fiscal Benefits (Chapter II(4)). Tourism activities are regulated under a law adopted in 2004136, which requires suppliers of different tourism products and services to be licensed, subject to the payment of fees, and to observe standards of quality, as laid down by the Ministry of Tourism. To date, specific regulations have been issued for travel agencies137, as well as persons providing animation services (cultural, entertainment, sports).138 Prices of hotel services are freely set, but depend on their classification.

133 IFC (2006). 134 Government Resolution No. 14 of 4 April 2003. 135 Three types of PATIs are identified: existing destinations (Type A), such as Maputo; existing

destinations with limited development (Type A/B), such as Pemba; and existing destinations with no development (Type B), such as Gorongosa National Park.

136 Law No. 4/2004 of 17 June 2004 replaced Law No. 14/99 of 1 November 1999. 137 Decree No 41/2005 of 30 August 2005. 138 Decree No. 40/2007 of 24 August 2007.


83. As part of its tourism policy, the Government issued a regulation in 2007 on transport services supplied to tourists, which applies to all licensed tour operators.139 This requires an application for a licence to be made to the Ministry of Transport and Communications (MTC), stating the nature of the transportation service provided, and an inspection of the licensee’s premises. Vehicles used for the transportation of tourists are required to be in perfect condition. Operators must lodge a caution (Mt 500,000), and be insured.

84. Mozambique has not made specific commitments on tourism under the GATS. It has been a member of the World Tourism Organization (UNWTO) since 1995.140

139 Decree No. 41/2007 of 24 August 2007. 140 UNWTO online information: Viewed at: http://www.unwto.org/states/index.php [10 July 2008].


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