Executive Summary
Although there are many South
African firms in Mozambique, the
country is not a trouble-free,
uncomplicated environment.
Over the last 10 years, Mozambique, sometimes touted as
South Africa’s tenth province, has emerged as one of the most
significant South African investment destinations on the African
continent. South Africa is a leading investor in that country
representing 49% of total foreign direct investment (FDI) from
1997–2002. South African companies have capitalised on
Mozambique’s geographical proximity to expand their reach
into the continent.
Yet the sizeable number of South African businesses in
Mozambique does not imply that the country offers a trouble-free,
uncomplicated business environment. The unexpected withdrawal
in 2001 of Rand Air, an air compressor and generator hire
company on the grounds of the level of corruption and red
tape in Mozambique, is an indicator of some of the difficulties facing South African investors.1
Mondi Forests, part of the
Anglo American group,
abandoned a projected $80 million eucalyptus plantation in the
Sofala Province in 1998. There are several other examples of
disinvestment or retractions of interest by companies who lost
their initial enthusiasm to invest once they were confronted by
some of the problems on the ground. Most South African
companies in Mozambique have encountered some of the risks and challenges traditionally associated with doing
business on the African continent.
Some of the main findings are:
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South African investors cover a broad and diverse spectrum
of business activity (parastatals and private sector
companies), and include small, medium and large
enterprises. However, in terms of net value of investment, the
mining-industrial complex dominates. Investment in the
sensitive agricultural sector has been relatively small, but has
led to significant job creation.
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That South Africa and Mozambique are neighbours has been
a critical consideration in the decision of many South African
businesses to expand into that market. South Africa is an
anchor economy, both for South African businesses and
international subsidiaries based in South Africa who are
venturing north.
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The successful implementation of mega-projects such as the
Mozal aluminium smelter and the Sasol pipeline has had a
huge impact on the South African, other foreign and
domestic business confidence in Mozambique. Both projects
have been used to showcase the ability of Mozambicans to
absorb and respond to the demands and requirements of
large investors.
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Government co-operation and support (from both the
Mozambican and South African sides) of big investors
through public-private partnerships (PPPs) have been
particularly critical to the success of these projects.
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The introduction of South African products to the market,
combined with the development and expansion of the local
distribution network, has led to a more consistent supply of goods and greater price stability. It has also created higher
consumer awareness in Mozambique.
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South African companies engage in various peer-learning
and coping strategies to overcome logistical bottlenecks
imposed by the constraints of the Mozambican economy. As
an example of the former, Sasol tailored its engagement
model with the Mozambican government on that of Mozal
and its community engagement model on that of Shell. The
latter was seen in moves such as opting to transport goods
by sea rather than over land to bring business costs down
and investing in sewerage farms, generators and water
boreholes.
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The experience of smaller versus larger investors diverges.
The latter are generally insulated from the constraints that
the domestic economy imposes, because they benefit from
fiscal incentives and exemption from red tape. In contrast,
small South African businesses face many of the same
difficulties that local business experiences, and are more
exposed to petty corruption and harassment by officials.
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The impact of South African investment on economic policy,
industrialisation, transfer of technology and the regulatory
framework has generally been benevolent and positive. In
many instances it has set new standards in labour and
business best practice.
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Linkages with domestic business are sector-dependent, but
generally limited. South African FDI is primarily capital
intensive and highly knowledge-based, making it difficult for
local business to link into the opportunities created. However,
some mega-projects have made a special effort to transfer
skills to local businesses to enable them to work as subcontractors.
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South African FDI has not caused, but has contributed to, the
distortion of the Mozambican economy. These distortions
reach across wage and income levels, and manifest both in
a geographic divide between the more affluent south versus
the poor centre and north, and between rural and urban
areas.
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The weakness of the Mozambican regulatory environment
(especially the justice system), ineffective bureaucracy, corruption
and the cost of doing business were identified as key
impediments to business growth, development and confidence.
The gradual investment saturation of the urban areas
implies that the deficiencies in the regulatory environment
will grow in importance as businesses begin to venture north
and extend into the rural areas. Improvement in the granting
of land tenure rights and the development of basic
infrastructure will be critical to make such an expansion
feasible.
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South African business dominates the small private sector of
Mozambique, as do other foreign investors. Careful management
of local sensitivities and strict adherence to good
corporate governance practice are required to ensure the
continued positive reception of South African investors in
Mozambique.
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Almost all the South African investors interviewed indicated
that they would maintain or expand their operations in
Mozambique in the near future. They also have a fairly
optimistic view of the economic future of Mozambique.
Footnote:
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Development Bank of Southern Africa, Financing Africa’s Development: Enhancing the Role of Private Finance, Development Report 2003, Development Bank of Southern Africa, 2003, p.119.
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- 421Kb ~ 2 min (104 pages)
