Mozambique has over the years experienced an impressive economic growth averaging eight per cent over the past decade and has managed to sustain political stability post war-conflict. With the re-established of peace and security, the country’s macro-economic stability is secure making Mozambique’s rich oil and gas reserves an attractive destination for investment. Mozambique is anticipating investments in the energy sector (electricity) of over US$D10 billion in the coming ten years as well as significant investment in the oil and gas sector (Anadarko LNG plant), graphite (various mining concessions have commenced) and the power and infrastructure sectors, particularly related to the reconstruction after various cyclones.[1] Natural gas development will drive economic growth in Mozambique, presenting many investment opportunities.
However, the ability to freely transfer legitimate funds after-tax profits, payments on external debt or invested capital is crucial for foreign direct investors. Mozambique has over the past years undertaken a complete overhaul of its exchange control regime with the objective of promoting the free movement of goods, capital, services, and people. In 2009 it enacted a new exchange control law called the ‘Foreign Exchange Law’ which was intended to reinforce the liberalisation of existing operations by eliminating the constraints applicable to payment transfers between residents and non-residents. The Law on Foreign Exchange and implementation decree represented a major step forward in that it eliminated restrictions on transactions and provided foreign and local investors with more opportunities and flexibility in structuring cross-border transactions and investments.
On the 15th of February 2021, the Bank of Mozambique issued a circular No. 02/EFI/2021 clarifying the obligation on exporters to convert into the national currency 30% of revenues from exports of goods and services and investment abroad by resident entities. The circular provides clarification on the exact terms of the meaning and scope of the provisions of Notice No. 6/GBM/2020 which had been published last year on the 10th of June.
To fully comprehend the clarification, regards must be had to the contents of Notice No. 6/GBM/2020 of June 10. This notice was published to mitigate the negative impact of the COVID-19 pandemic on the Mozambican economy. This notice amended the Exchange Rate Rules and Procedures (Notice no. 20/GBM/2017) by implementing urgent and transitory measures to mitigate the effects of the Coronavirus on the Mozambican economy. The notice sought to pave way for more efficient forex transactions while adjusting to the dynamics of the forex market at present. The notice provided for the following:
(a) Repatriation of proceeds – the repatriation of proceeds arising from export of goods and services and revenue generated abroad shall be made by bank transfer to a specific export proceeds account held by the beneficiary where the commercial bank shall convert into Meticais thirty percent (30%) of the relevant amount, at the exchange rate of the date on which the proceeds are received. The remaining balance of seventy percent (70%) may be kept in foreign currency and can be used for transfers to bank accounts of the same nature and may be converted into Meticais to pay to resident entities.
(b) Advance direct payments – The post of a performance guarantee is no longer required for advanced payments in an amount equal or higher than two hundred and fifty thousand United States Dollars (USD 250,000).
(c) Current transfers abroad – A tax clearance certificate is no longer required to submit to the commercial bank for transfers abroad relating to: (i) payment of healthcare, education and accommodation-related expenses as long as such payment is made directly to the relevant services providers; (ii) payment of alimony, (iii) payment of family expenses and (iv) payment of travel and tourism-related expenses. This measure does not apply to foreign employees working in Mozambique.
The Bank of Mozambique clarified the above provisions through the circular by making it clear that;
a) Income resulting from the payment of rents by non-resident entities, for using properties belonging to residents, located in the national territory, when such payment is made to accounts domiciled in the National Banking System is not subject to the mandatory duty to convert 30% (thirty percent) of the amount received into national currency and can be kept entirely in foreign currency in the beneficiary’s account.
b) Revenues relating to the payment of remuneration as salaries for services provided by residents to embassies and other diplomatic and consular representations established in Mozambique such revenues are exempt from mandatory 30 % conversion and may be kept entirely in foreign currency in the beneficiary’s account.
c) The recipients of Circular no. 02/EFI/2021 of 12 February 2021, which took effect on 16 February 2021, are credit institutions and financial companies subject to the supervision of the Bank of Mozambique. The Bank of Mozambique shall act in accordance with the parameters of the scope described in the previous paragraphs.
The Bank further announced that any doubts that arise in the interpretation and application of this Circular must be submitted to the Licensing and Exchange Control Department.
Whilst the public clarification made by the Bank is highly commendable for purpose of transparency for investors, the circular and the notice although enacted because of the effects of the pandemic remains a challenging hurdle for investors to do business in Mozambique. The circular and notice represent serious concerns and operational constraints on investors as they must convert a part of their earning to local currency. This is likely to discourage Foreign Direct Investments from the country. Nonetheless, there has been a remarkable evolution and a greater openness in foreign exchange norms and procedures as the former exchange law regime stipulated such funds to be held all in national currency.
In conclusion it is recommended that Mozambique consider eliminating the obligation to convert 30 % foreign exchange earnings into meticais and allow same to be held in domestic foreign currency account post the COVID-19. This will contribute to a greater flow of capital to the country, creating a more attractive and secure business environment for investments in Mozambique.
Credits: Chido Pamela Mafongoya, The Centurion Law Group
[1] 5 Reasons to Invest in Mozambique httpsss://africa.com/5-reasons-to-invest-in-mozambique/#.
