The Government of the Republic of Mozambique announced the launch of the Programme of Economic Acceleration Measures (henceforth "EAP") on 9 August 2022, a programme comprising a package of twenty reform measures aimed at resuming economic growth.
The Mozambican economy has been affected by both internal and unprecedented external factors such as: i) suspension of external support for the State Budget which translates into eight hundred million dollars less resources per year; ii) terrorist action in Cabo Delgado; iii) the health crisis caused by COVID-19; iv) an increase in the frequency and intensity of cyclones and floods; and v) the conflict in Ukraine.
The growth of the Gross Domestic Product ("GDP") has slowed down over the last seven years from an average of 7.3% to 2.8%, which is a huge obstacle for the Government to achieve its socio-economic development goals.
The Government is therefore adjusting its strategy in order to boost the revival of its economy through a structured package of twenty reform measures:
1. Reduction in the VAT Rate from 17% to 16%, in order to reduce the tax burden, thus promoting the dynamisation of the economy and improving the purchasing power of families;
2. Exemption from VAT on the import of production factors for agriculture and electrification, with the aim of reducing the costs of agricultural inputs so as to promote production and competitiveness in the agricultural sector and to promote investment in renewable energies to accelerate their access allowing their arrival in rural areas;
3. Lower the IRPC rate from 32% to 10% in agriculture, aquaculture and urban transport so as to improve competitiveness in these sectors (making them more attractive to private investment), reduce the deficit and the cost of public transport.
Also as part of promoting the competitiveness of the agricultural sector, the government will reduce the withholding tax levied on foreign entities that provide services to national agricultural companies from 20% to 10% and eliminate the withholding tax of 20% on interest on external financing for agricultural projects;
4. Establishing fiscal incentives for new investments in agriculture, agro-processing, transformation industry, tourism and transport carried out within the next three years, in order to increase installed production capacity. The incentives will include accelerated depreciation;
5. Simplify the procedures for repatriation of capital, in order to facilitate the flow of capital to attract more foreign investment and reduce costs;
6. Strengthening the supervision of natural resource export operations, ensuring greater efficiency in the taxation of exports through the control of quantities, specifications and associated values, reducing the phenomenon of under-invoicing of exports.
This measure will be accompanied by more vigorous and effective action to reduce fiscal risks and combat smuggling in imports, with the introduction of independent controls and supervision of the respective processes;
7. The promotion of housing and the boosting of the national construction materials industry, promoting a housing construction market, reducing construction costs and ensuring greater access to decent housing for the population;
8. Allocate 10% of the tax revenues from natural resources to the development of the provinces where the extraction occurs, aiming to ensure that these resources have a direct impact on the improvement of the lives of the populations of the exploited areas, thus reducing asymmetries. These resources should be allocated exclusively to finance infrastructure projects and development programmes that have a multiplying effect on the local economy;
9. Creation of a Mutual Guarantee Fund, responding to one of the main obstacles to the development of small and medium Mozambican companies operating in the agriculture, fish farming, agricultural marketing and processing, tourism and housing sectors: access to and the high cost of financing.
This Fund in its first phase will be valued at USD 250 million;
10. Introduce the mandatory blending of imported fuels with biofuels, aiming to generate more jobs and induce more private investment in the value chain of agricultural production;
11. Improve the competitiveness of national airports and logistics corridors by ensuring an increase in the flow of people and volume of goods to or through Mozambique. Within this scope, incentives will also be introduced for transshipment operations in the main ports and increase the competitiveness of the tariffs applied by the main airports, ports and logistics corridors;.
12. Stimulating local production of goods procured on a scale by the State, adjusting public procurement rules to ensure that the addition of productive value in Mozambique is more valued in the evaluation criteria of public tenders. The duration of contracts will also be increased to ensure greater predictability of revenues for investing companies;
13. Revise the general visa regime for entry into the country, to promote greater flow of tourists and businessmen, creating a visa exemption for citizens of countries with low immigration risk to Mozambique, extending the duration of investment visas, and turning the tourism visa into a mixed tourism and business visa. Electronic visas will be introduced;
14. Adjusting the Labour and Investment Laws to make them more attractive to foreign investment;
15. Simplifying administrative processes in the relationship between the State, companies and people, such as simplifying notary acts and eliminating the need for permits in various business sectors;
16. Reform of elements of the system of administration of Justice, specifically reviewing and simplifying procedural legislation and the code of costs, strengthening and empowering human resources and massifying alternative means of dispute resolution;
17. Strengthening the supervision of social security funds and complementary funds, ensuring greater diversification of investments and enhancing taxpayer protection;
18. Greater simplification in the architecture of public administration by merging redundant public administration bodies, integrating a greater number of public services on digital platforms and introducing greater interoperability between services to improve service efficiency;
19. Creation and implementation of the Mozambique Sovereign Wealth Fund, to ensure that petroleum revenues are used in a transparent manner, while these revenues protect the economy against the effects of revenue volatility and external shocks and contribute to promote socio-economic development;
Within this framework, the reform of the state-owned enterprise sector will also be deepened and strengthened to improve its performance and to prepare for the privatisation of non-strategic companies so as to reduce their fiscal risk and pressure on the public accounts;
20. Reform of the State's internal audit subsystem, improving governance, transparency and accountability in the State administration.
The readjustments and incentives of the SAP thus seek to create conditions for the key sectors of the economy to develop, and these measures must be implemented within two years. To this end, a Programme Coordination Unit will be created to implement and monitor the Programme, as well as a Strategic Economic Council to advise the President of the Republic on matters related to the Government's economic policy.