Mozambique – first and third world in one place

While Mozambique’s economy has experienced rapid growth over the past years, much of this new wealth has not trickled down to the broader population.

Dominique Lalous, country manager for DHL in Mozambique

Dominique Lalous, country manager for DHL in Mozambique

So says Dominique Lalous, country manager of logistics company DHL in Mozambique.

Mozambique’s nascent coal mining and natural gas sectors are attracting significant foreign investment. Rich coal deposits in the western Tete Province have lured mining companies such as Rio Tinto as well as Brazil’s Vale, while US-based Anadarko Petroleum and Italian oil and gas company Eni have announced significant offshore gas discoveries in their respective blocks in northern Mozambique.

Lalous says these investments however, haven’t yet had much of an impact on unemployment. The coal mining companies have only recently started with production and many of the natural gas projects are still in exploration phase. It will still take some time before the average man on the street will feel the benefits of these projects in his pocket. The majority of the rural population still live on less than US$2 a day.

Because of Mozambique’s inadequate transport infrastructure, many of these projects are also not progressing as fast as they should. “To effectively transport the coal exports, infrastructure projects to the key port cities – Nacala, Beira and Maputo – are being implemented by the public and private sector. Another challenge is to get goods in and out of mining and gas locations. The national airline has a monopoly on a majority of the routes and limited cargo capacity. Road transport is the only alternative, but it takes days to get in an out. The conditions of the roads are very poor and unpredictable, especially during rainy season,” explains Lalous.

She says the economy needs to be less reliant on the resources sector. “Despite its strong and sustained past economic growth, the Mozambican economy has undergone minimal structural transformation. The country’s productive base remains dependent largely on natural resources, which are concentrated in a few megaprojects, specifically coal, aluminium and gas. These projects result in large foreign direct investment inflows, which have driven economic growth, but not had a significant impact on government revenues, unemployment and economic diversification.”

Potential for retailers

Mozambique’s retail industry offers significant potential for new players to enter the market.

Lalous, who was born in Belgium, says when she first arrived in the Mozambican capital Maputo in 2008, there was only one supermarket in town. “We had to go to South Africa every three weeks just to stock up on the basics. Now more chains have come in, such as South Africa’s Pick n Pay and Woolworths. However, many products are still not available in Maputo. There are many opportunities, from clothing to pet shops to drug stores.”

She says service quality in Mozambique is often below standard due to low competition.

For example, Lalous says there is only one manufacturer of cardboard boxes in Maputo and it can take anything from one to three months for an order to be delivered. “They don’t care about providing a good service because they have a monopoly; they don’t have competition.”

She adds that foreign investors currently operating in Mozambique expect the same level of service they are used to in their home countries. This creates an opportunity for more companies to set up shop in certain industries.

Doing business in Mozambique

Although Mozambique is not as expensive as its fellow Portuguese-speaking country Angola, Lalous says the cost of doing business has increased in recent years. “Over the last five years the price of renting office and residential space has risen due to high demand, particularly from large companies and the arrival of foreigners. The average rental price of office space ranges from $2,000 -$3,200 per square metre. As most goods are imported, the cost of living is relatively high.”

According to Lalous, Mozambique’s customs regime is in need of reform. “The law is interpreted differently in the south, centre and north of the country. What applies in the south is not what is implemented in the north. Last year a new single windows system was launched, whereas the clearing process was now being introduced in to an on-line system. This created a chaotic situation as customs officials were not trained properly and resulted in huge backlogs at the borders, ports and airports, which affected the flow of goods in to Mozambique. It eventually stabilised and all went well until about 10 weeks ago, whereas customs in Maputo now introduced a manual duplication of the single windows system. The average time to clear goods has doubled. These new measures are obstructing growth and are disruptive for business.”

Finding skilled human resources can also prove to be a challenge for companies. “The civil war, which ended in 1992, left a huge gap and the small pool of skilled people is targeted by international companies. Companies often recruit staff based on their potential, and then train them in-house,” she says.

According to Lalous, one of the biggest misconceptions about Mozambique is that it is unsafe. “Mozambique is one of the safest places I have lived so far.”