Change and Uncertainty Make Business an Interesting Challenge

Mozambique lies on the southeast coast of Africa, bridging the Indian Ocean and the Lebombo mountains. Nearly twice the size of California, the nation is home to just under 23 million people. It holds the unique distinction of being named as one of Africa’s fastest growing nations at the same time as it was designated one of the least-developed countries in the world.

What to make of these opposing honors? Mozambique is a country in the middle of change and significant growth. The challenge is that this growth comes from several decades of extreme poverty and upheaval following Mozambique’s independence from Portugal in 1975. Firms that can navigate the fresh and shifting landscape to do business in Mozambique will find themselves in on the ground floor with a nation motivated to build up.

Where are the Opportunities?

When it comes to Mozambique, a better questions might be, “Where aren’t there opportunities?” A Portuguese colony for around 500 years, the nation was largely run by disinterested corporations that allowed things to fall into disrepair just before an internal war began that ran from 1977 – 1992. As a result, there are significant needs for infrastructure developments of all kinds. Educational opportunities, roadwork needs, and public works projects are all waiting for the right partner.

Investors can also consider Mozambique’s rich natural resource base. The country has a number of mineral deposits without large mining bases, a multitude of agricultural products, and all the bounty of the Indian Ocean. Most of the development at the moment is done on an individual basis, with small holdings and family farms dominating the economic landscape. Though the government would like to diversify, agriculture accounts for the majority of Mozambique’s GDP even though some 80 percent of the counties arable land is uncultivated.

The people themselves are another source of opportunity. Like many other nations in Africa, Mozambique shows a significant youth bubble with a median age of 16.8 years. These young workers are available for low wages (monthly salaries start at $60 USD) and face local unemployment rates of more than 20 percent, making them eager to work for foreign business groups. Most residents are bi- or tri-lingual, speaking the official language, Portuguese, along with two or three local languages.

Last but not least, the technology sector is making large strides in Mozambique. Since infrastructure for landline service has been historically lacking, mobile networks have double digit growth. Applications harnessing mobile and free-roaming service needs are very successful with Mozambique’s subscriber community.

Infrastructure, Educational, Political, and Financial Concerns

Bringing a business to -Mozambique is supported by a number of government and community agencies, including the Centro de Promoção de Investimentos (CPI) and magazines like Invest Mozambique. However, firms coming to the country have to overcome serious infrastructure, educational, political, and financial concerns. On the infrastructure front, Mozambique lacks strong infrastructure basics in every major sector. Even in urban environments, 23 percent of the population drinks unimproved water and there are only three doctors estimated to serve every 100,000 people. Roads and distribution systems took a major hit in early 2000’s flooding, and many remain in poor repair. This is a challenge that can be an opportunity, but something new business ventures will have to plan to overcome.

Educational concerns are another problem for firms looking to partner with local labor or supply networks. Less than 50 percent of the adult population in Mozambique is considered to be fully literate, leaving an oversupply of agricultural and manual laborers with a shortage of educated workers. Firms offering education and training on the ground may obtain talent advantages, but companies need to be ready to partner with less formally educated peers.

The political situation is another area of concern. Mozambique has not yet mastered the art of peaceful democratic elections, contesting each of its elections since independence both legally and with street violence. Though residents consider their nation to be a democracy, international groups have condemned the nature of local elections as fraudulent. Arriving businesses will want to be sensitive to the political situation and mindful of the need for extra precautions near election events.

Finally, there are financial concerns to consider. While the government does offer tax breaks and other financial incentives to would-be investors in Mozambique, obtaining financing in country is difficult. Interest rates hover around 16 percent, while the country’s banking system is considered to be too underdeveloped for major international trade deals. Firms will need to have external financing sources for investments, since loans will be hard to come by and the average yearly income of $1,000 (USD) limits the number of in-country venture capitalists. The government does offer tax reductions of up to 50 percent for some types of firms, but these must be applied for carefully.

Key Competitors

Arriving in Mozambique, the large number of Scandinavian firms already on the ground can be a surprise. While China dominates other areas of Africa, Scandinavia dominates Mozambique, consuming nearly 50 percent of its total exports. The next largest trading partner is neighboring South Africa, which controls around 11 percent of the trade market, according to the 2011 CIA Factbook.

Why the dominance by Scandinavia? Following its independence from Portugal, Mozambique relied heavily on foreign aid to survive. The countries providing the bulk of the aid were Scandinavian, with the Scandinavian countries emerging as the trading partner of choice for the nation over time. Minority firms seeking to do business in Mozambique need to be aware of this historical edge for former aid givers when considering their competition.

Sponsored Opportunities for MWBEs

The majority of the U.S.-based companies currently operating in Mozambique are large multinational firms such as Coca-Cola and Exxon-Mobile. Small and medium-sized firms sometimes have found it difficult to overcome the challenges of getting set up in the country. However, at the end of 2008, Mozambique entered into a special partnership with the United States under the Millennium Challenge Corporation (MCC) agreement to promote small business growth and development through poverty alleviation and infrastructure projects. Nearly $507 million(USD) has been pledged for business growth and development projects over the next five years, with only $109 million committed as of summer 2011.

This unspent money represents an opportunity for minority owned businesses interested in Mozambique to have an American sponsor for their entry into the country’s economy. Coupled with the support of the government’s own CPI for new development, this significantly lowers the barriers to entry in Mozambique.

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