Investment climate generally favourable - new report

South African businesses in Mozambique continue to see high returns on their investments, but locals worry that foreign companies are crowding them out while not creating sustainable jobs. According to a recent survey by the South Africa Institute for International Affairs (SAIIA) Mozambique enjoys some 49 percent of South African foreign direct investment, the lion's share on the continent. More than 262 South African projects have been registered by Mozambique's Investment Promotion Centre since its establishment in 1985, resulting in an accumulated investment value of US $1.33 billion by the end of 2003. South African investors controlled three of the four sugar estates, three of Mozambique's four breweries, all the soft drink bottling plants and large cereal mills, and most tourism facilities in the country, the report observed. However, South African investment in Mozambique had not necessarily led to sustainable employment opportunities in the impoverished country. The Mozal aluminium smelter project created 5,033 temporary positions, of which 70 percent were held by Mozambicans during the construction and expansion phases. After completion of both phases, the full staff complement was now about 800 staff members. "More than 300 Mozambicans worked on the construction of the Sasol [gas] pipeline, generating wages in excess of US $5 million. However, when the pipeline has been laid, its full staff requirement will shrink to under 200," said the report. On the other hand, South African investment in two sugar estates and their mills created 3,034 permanent jobs, as well as seasonal employment for 5,398 workers. Researchers noted that agriculture remained the largest employer and recommended the need for the Mozambican government to attract more investment into this critical area of economic activity. About 80 percent of Mozambicans are involved in subsistence farming. The most significant investment failure - not only by South Africans - was that foreign companies had not adequately transferred skills or built links with local businesses. "The superior technology, business knowledge and (relative) financial strength of South African companies in the Mozambican market have also contributed to their domination of local industry. Because of their strong presence in the local economy, South Africans have been singled out as responsible for the crowding out of local business," SAIIA commented. The introduction of South African products, combined with the development and expansion of local distribution networks, had led to a more consistent supply of goods, greater price stability and higher consumer awareness in Mozambique. The impact of South African investment on economic policy, industrialisation, transfer of technology and the regulatory framework had generally been benevolent and positive. "In many instances it has set new standards in labour and business best practice. It has also led to the diversification and growth of the country's revenue base," the report noted. But the sizeable number of South African businesses operating in Mozambique did not imply that the country offered a "trouble-free, uncomplicated business environment". The successful implementation of mega-projects such as the Mozal aluminium smelter and the Sasol pipeline had boosted business confidence in Mozambique, but the survey found that the two key impediments to business growth were ineffective bureaucracy and corruption. As an example of some of the difficulties South African investors face, the report highlighted the unexpected withdrawal in 2001 of Rand Air, a South African air compressor and generator hire company, on grounds of the high level of corruption and red tape. Poor infrastructure, smuggling and theft were also among the concerns raised by South African investors. Overall, foreign businesses were in favour of extensive efforts by the authorities to curry favour with international donors. The international community has responded positively to Mozambique's economic reforms and its move towards decentralisation after the end of the civil war in 1992. Almost all the South African investors interviewed indicated that they would maintain or expand their operations in Mozambique in the near future. They also took a fairly optimistic view of the economic future of Mozambique, although the experiences of smaller investors diverged from those of bigger ones, who are far more insulated from the regulatory difficulties and bureaucratic hurdles which face small investors.