Mozambique’s Mining Law and Petroleum Law are progressive and designed to attract investment to the country, but the impact of the declining economy since 2016, the Covid-19 pandemic and an insurgency in the northern province of Cabo Delgado, have made it difficult for the country to reap the benefits of its vast mineral and gas resources.

“To promote investments in the extractives sector, the government of Mozambique has implemented the progressive and enabling Mining Law, which was passed by Parliament in August 2014,” says law firm Beech Veltman CEO Warren Beech.

The law is progressive in comparison to those of other African countries and addresses the regularisation of, and makes provision for, a licensing regime to authorise the lawful extraction of minerals, which includes artisanal and small-scale mining (ASM) in the form of mining certificates and mining passes.

Through accommodating ASM, the law helps to avoid illegal mining and the associated consequences such as adverse environmental impacts. In addition, the country’s taxation laws support the mining law by providing various tax incentives.

“It makes provision for preferential procurement of goods and services from Mozambican individuals or companies. Transparency is supported through a requirement that goods or services exceeding prescribed amounts must be by way of public tender. Where non-Mozambican companies provide goods and services, they must associate with Mozambican companies,” Beech explains.

The law also makes provision for the specific allocation of revenues that are paid to the State, to develop local communities in and around mining operations. It also addresses the relocation of communities for mining purposes and includes safeguards aimed at protecting communities in a relocation process.

The Petroleum Law is advantageous because it allows for the differentiation between minerals and petroleum, and caters to the unique exploration and operations features of petroleum. The law also encourages exploration of Mozambique’s vast liquified natural gas (LNG) reserves.

The Mining Law and the Petroleum Law are also supplemented by the regulatory authority to issue subordinate laws, enabling the framework to be more agile and responsive to stakeholder needs.

“The [laws] are managed by three primary regulatory institutions – the Council of Ministers, the Ministry of Mineral Resources and the National Directorate of Mines. The Mining Law also now provides for the High Authority for the Extractive Industry. Each of these bodies contribute to this responsiveness,” says Beech.

These aspects of the Mining Law and the Petroleum Law, along with the Specific Regime of Taxation and Fiscal Benefits for Mining Operations, make Mozambique’s mining industry appealing to foreign investors, especially from a tax perspective. The royalty tax and corporate tax are production- and profit-based but are still lower than those of other African countries.

However, the country has been unable to benefit from it.

“The economy has been extremely constrained since 2016, primarily because of the global downturn in demand and commodity prices. “ It has also been hard hit by drought, natural disasters, extreme weather and socioeconomic challenges,” explains Beech.

The natural disasters and extreme weather resulted in the loss of lives, as well as property and infrastructure damage, which has impacted on the exploitation of natural resources.

The vast mineral reserves are untapped, owing to, for example, poor infrastructure, decrease in demand and the insurgency as well as concerns regarding government’s response to the insurgency.

Government has had to consider amendments to both laws, resulting from calls for resource nationalism in response to high levels of unemployment and impoverishment in several regions, including Cabo Delgado.

These factors likely contributed to creating opportunities for insurgency in the region since 2017, which intensified in late 2020, notes Beech.

Government has been criticised for its use of armed response, which has raised human rights violation issues.

Government has to take a holistic approach to correct the situation, including addressing the root socioeconomic issues that have potentially contributed to the insurgency, says Beech.

“Extractive companies cannot take the risk of exposing their employees and service providers to physical harm. The only logical and reasonable response is to withdraw in the hope that the projects and operations can resume in the near future,” says Beech.

The violent attacks forced multinational oil and gas company Total France to withdraw its employees from the LNG project and reconsider the company’s multibillion-dollar investment.

The discovery of vast reserves of LNG off the coast of northern Mozambique created significant expectations. However, owing to the impact of Covid-19, with Cabo Delgado being the epicentre, many operations were temporarily closed. The withdrawal of Total France’s investment has had a significant impact on private commercial partners and government.

The temporary closure of mines has impacted on all aspects of the economy, ranging from employees – many of whom have lost their jobs – to State revenue. The pandemic halted progress on government’s investment strategies surrounding the extractives industry.

“Government will need to take decisive steps, particularly to allay fears around the insurgent activities in Cabo Delgado, to stimulate further investment in the extractives industry, and the resumption of operations where significant investment has been made,” Beech concludes.