What are the main risks to investment in Mozambique?
Most African countries are looking at the post-pandemic with the intention of taking advantage of their own capabilities, but also developing different sectors, diversifying the economy and consolidating a development pathway through the lure of foreign investment.
Combating the informal economy is considered a challenge, but it is being faced by governments through actions such as the modernization and digitalization of processes and procedures of the tax authority in Mozambique.
In Mozambique, where the consequences associated with the pandemic are added to the risk of political-military instability, a gradual process of resumption of investment is expected, including in real estate, which can be interpreted as a factor of trust. It is now expected that investments, especially inbound, should gradually resume in the extractive industry, which is seen as fundamental to the growth of the economy.
What are the main risks to investment in Mozambique? At present, we believe that, in addition to the pandemic risk, which resulted in the closure of several companies and the consequent increase in the unemployment rate, political and military instability must be added, which suspended substantial investments in the north of the country, in the area of the extractive industry, which was expected to leverage the economy, being heavily dependent on foreign investment, particularly in the extractive industry.
Nevertheless, there is a certain resilience of the economy and a gradual recovery and resumption of investments, which indicates confidence in the country’s potential. From a fiscal perspective, it seems to us that the incentive framework is not adjusted to the current stage of the economy, so a deeper revision of investment legislation is expected in the short term. As far as the tax administration is concerned, there has been a lot of dynamics in tax inspections, especially with regards to the use of investment incentives and tax credits.
On the other hand, although the metical remained stable throughout the year, the tax authority’s systematic delays of n VAT refunds have a significant impact on the cash flow of companies. considering that the average repayment period is, as a rule, longer than 36 months. The expectation is that this situation will change in the near future since the modernization and digitalization of processes and procedures of the tax authority is underway, which will allow greater control and speed in the processing of credits and reimbursements, as well as the widening of the tax base, which will consequently result in the collection of more revenue.
Indeed, the informal sector, which is somewhat fed by the formal sector is, in our opinion, one of the main risks and challenges to investments in the country. If the digitalization of the tax authority is successfully implemented, we understand that many of these challenges will be mitigated.