Investment opportunities in Mozambique’s manufacturing sector

Below is an extract from Monitor Deloitte’s Investment Opportunities in Mozambique: Manufacturing Edition report.

The manufacturing sector in Mozambique is fairly incipient. It currently contributes about 9% to GDP and 0.8% to employment. It has shown stronger growth in the last few years: average growth rate of 5.1% between 2013 and 2015 with a high of 8.5% in 2015, higher than the GDP growth rate of 6.6%.

The sector is mainly comprised of micro companies, with few small- and medium-sized firms and are mainly involved with low technology intensity. Large firms are mostly dominated by foreign companies and are generally more capital intensive.

Significant subsectors are metals, chemicals, construction, industrial products and services, forestry, paper and packaging sectors, textiles, paint, soap, food and drink products, furniture and wood products, leather and shoes.

Like the agriculture sector, manufacturing faces a number of challenges such as competition with South African imports, unreliable electricity and a costly and bureaucratic business environment. As much of the production in the sector involves imports, i.e. most manufacturing companies process imported goods (e.g. by processing imported steel coil to make roof sheets) or require imported complementary goods such as packaging, products processed domestically are often more expensive than imports.

Interest rates on loans are prohibitively high, and financial products offered are often inflexible. Micro, small and medium enterprises often quote lack of access to financing as a key barrier to their development.

By contrast, private equity, which often results in value addition to businesses, offers strategic management support, productivity improvements, identification of growth opportunities and promotion of business sustainability, offers a more flexible financing tool that could help alleviate the current financing gap as well as providing technical support to businesses.

The potential of the manufacturing sector

Although the manufacturing sector is still underdeveloped, Mozambique has several advantages that give the sector a favourable outlook. Mozambique has good transport linkages to South Africa, Malawi, Zambia and the DRC; competitively priced supply of labour; and a wealth of natural resources that present opportunities for processing.

In addition, there is little domestic competition in most manufacturing subsectors, and close proximity to higher income African countries like South Africa, Tanzania, Zimbabwe, Zambia, Malawi and Swaziland. The future development of the gas and other extractives industries also offers many opportunities for the manufacturing sector, offering a guaranteed source of demand for large quantity orders of goods and services.