Foreign direct investment in Mozambique has been in decline since 2013, owing to political uncertainty, falling commodity prices and security concerns.

Law firm Beech Veltman CEO Warren Beech says domestic investment has, however, remained steady throughout the Covid-19 pandemic, and the country’s abundance of liquefied natural gas and other resources demonstrate the potential for increased inflows going forward.

Mozambique has significant exploration and resource potential, with many international companies considering potential projects in its mining industry.

Ongoing improvements to local infrastructure – such as China’s investing in infrastructure projects – can further assist the country and miners while offering opportunities for foreign direct investment, he points out.

With future demand for Mozambique’s key minerals – such as coal (coking and thermal), graphite, iron-ore, titanium, copper, gold, bauxite and tantalum – already high, production in the country is set to remain positive, although the lack of adequate infrastructure has resulted in an inability to meet the mining industry’s demands, adds Beech.

Mozambique will have to invest substantially in electricity generation, export infrastructure and transport routes to curb its looming infrastructure woes, in addition to acquiring mining, refinery and automation equipment; maintenance services and machinery; and other efficiency improving services to enhance mines’ feasibility and profitability.

Beech says that, despite infrastructure constraints and other factors, there are favourable aspects which encourage investment such as lower taxes and the vastness of the mineral reserves.

“The vastness of the natural resources has become an attraction for investment in the country and this has led to an increased demand for qualified, competent employees and service providers, which provides an opportunity for growth, development, transformation and upskilling of Mozambican citizens.

“Barring any major political upheaval, and with good local stakeholder engagement, the potential for Mozambique’s mining sector will continue to be promising.”

Legislation Changes

Beech states that one legislative area in which Mozambique’s government has imposed targets is in equity participation, with mining firms obliged to have between 5% and 20% of their equity held by Mozambicans.

Where this results in full participation of Mozambicans at board level, it could present an opportunity to increase access to the highest levels of business decision-making for Mozambican citizens.

He stresses, however, that the risk for this kind of equity requirement is that it could introduce an opportunity for rent-seeking among local executives and present a substantial cost to the mining firm without providing any long-term benefit.

Nevertheless, Beech stresses that Mozambique has the necessary legislation to welcome and safeguard foreign and national investors.

The 2014 Mining Law provides that mineral resources in the soil and topsoil, interior waters, territorial sea, on the continental shelf and within the exclusive economic zone are the property of the State.

This law includes several new key components, such as the provision that new mining contracts must provide for State participation in mining operations, although no minimum or maximum percentage participation is specified.

The introduction of local-content requirements requires that foreign nationals must partner themselves with a Mozambican to provide goods and services for mining operators.

Meanwhile, the introduction of domestic supply obligations enables government to buy minerals at market price for use in the local industry, should Mozambique’s commercial interests require such.

Further, a broad provision that all mining rights transfers, whether direct or indirect, are subject to approval by the Ministry of Mineral Resources, was introduced.

There is also a requirement that the details of new mining contracts – excluding strategic and competitive information – must be published in Mozambique’s official gazette, the Boletim da República, for increased transparency.

Beech explains that a number of the changes to the mining laws are likely to encourage investment.

These changes include the granting of exploration licences for a period of five years (renewable for an additional three years); the granting of mining concessions for a period up to 25 years (renewable for a further period of 25 years); investment protection through the protection of property rights; well defined local investment and employment requirements; transparency requirements and circumstances under which rights holders will be held liable for damage to land and property that results from mining operations.

Beech argues that the 2014 Mining Law has been effectively implemented, with no major regulation deficiencies reported to date.

Further, despite the setbacks caused by the Covid-19 pandemic, the Commercial Code, the Labour Law and the Electricity Law are being revised. These laws could be approved by the end of 2023, which could impact on the mining sector.

“As per the draft Bills that were circulated for public consultation, the approval of the new Electricity Law will be a significant change in Mozambique’s legal framework, as it replaces legislation in place since 1997. The revision aims to adapt the law to the challenges of universal access to quality and reliable energy using all energy sources,” Beech concludes.