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The South African Institute of International Affairs
Business in Africa Research Project


Every Continent Needs an America:
The Experience of South African firms doing business in Mozambique


Neuma Grobbelaar
Contact: grobbelaarn@saiia.wits.ac.za

Posted with permission from the South African Institute of International Affairs
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Executive Summary

    Although there are many South African firms in Mozambique, the country is not a trouble-free, uncomplicated environment.
Over the last 10 years, Mozambique, sometimes touted as South Africa’s tenth province, has emerged as one of the most significant South African investment destinations on the African continent. South Africa is a leading investor in that country representing 49% of total foreign direct investment (FDI) from 1997–2002. South African companies have capitalised on Mozambique’s geographical proximity to expand their reach into the continent.

Yet the sizeable number of South African businesses in Mozambique does not imply that the country offers a trouble-free, uncomplicated business environment. The unexpected withdrawal in 2001 of Rand Air, an air compressor and generator hire company on the grounds of the level of corruption and red tape in Mozambique, is an indicator of some of the difficulties facing South African investors.1 Mondi Forests, part of the Anglo American group, abandoned a projected $80 million eucalyptus plantation in the Sofala Province in 1998. There are several other examples of disinvestment or retractions of interest by companies who lost their initial enthusiasm to invest once they were confronted by some of the problems on the ground. Most South African companies in Mozambique have encountered some of the risks and challenges traditionally associated with doing business on the African continent.

Some of the main findings are:

  • South African investors cover a broad and diverse spectrum of business activity (parastatals and private sector companies), and include small, medium and large enterprises. However, in terms of net value of investment, the mining-industrial complex dominates. Investment in the sensitive agricultural sector has been relatively small, but has led to significant job creation.


  • That South Africa and Mozambique are neighbours has been a critical consideration in the decision of many South African businesses to expand into that market. South Africa is an anchor economy, both for South African businesses and international subsidiaries based in South Africa who are venturing north.


  • The successful implementation of mega-projects such as the Mozal aluminium smelter and the Sasol pipeline has had a huge impact on the South African, other foreign and domestic business confidence in Mozambique. Both projects have been used to showcase the ability of Mozambicans to absorb and respond to the demands and requirements of large investors.


  • Government co-operation and support (from both the Mozambican and South African sides) of big investors through public-private partnerships (PPPs) have been particularly critical to the success of these projects.


  • The introduction of South African products to the market, combined with the development and expansion of the local distribution network, has led to a more consistent supply of goods and greater price stability. It has also created higher consumer awareness in Mozambique.


  • South African companies engage in various peer-learning and coping strategies to overcome logistical bottlenecks imposed by the constraints of the Mozambican economy. As an example of the former, Sasol tailored its engagement model with the Mozambican government on that of Mozal and its community engagement model on that of Shell. The latter was seen in moves such as opting to transport goods by sea rather than over land to bring business costs down and investing in sewerage farms, generators and water boreholes.


  • The experience of smaller versus larger investors diverges. The latter are generally insulated from the constraints that the domestic economy imposes, because they benefit from fiscal incentives and exemption from red tape. In contrast, small South African businesses face many of the same difficulties that local business experiences, and are more exposed to petty corruption and harassment by officials.


  • The impact of South African investment on economic policy, industrialisation, transfer of technology and the regulatory framework has generally been benevolent and positive. In many instances it has set new standards in labour and business best practice.


  • Linkages with domestic business are sector-dependent, but generally limited. South African FDI is primarily capital intensive and highly knowledge-based, making it difficult for local business to link into the opportunities created. However, some mega-projects have made a special effort to transfer skills to local businesses to enable them to work as subcontractors.


  • South African FDI has not caused, but has contributed to, the distortion of the Mozambican economy. These distortions reach across wage and income levels, and manifest both in a geographic divide between the more affluent south versus the poor centre and north, and between rural and urban areas.


  • The weakness of the Mozambican regulatory environment (especially the justice system), ineffective bureaucracy, corruption and the cost of doing business were identified as key impediments to business growth, development and confidence. The gradual investment saturation of the urban areas implies that the deficiencies in the regulatory environment will grow in importance as businesses begin to venture north and extend into the rural areas. Improvement in the granting of land tenure rights and the development of basic infrastructure will be critical to make such an expansion feasible.


  • South African business dominates the small private sector of Mozambique, as do other foreign investors. Careful management of local sensitivities and strict adherence to good corporate governance practice are required to ensure the continued positive reception of South African investors in Mozambique.


  • Almost all the South African investors interviewed indicated that they would maintain or expand their operations in Mozambique in the near future. They also have a fairly optimistic view of the economic future of Mozambique.

Footnote:
  1. Development Bank of Southern Africa, Financing Africa’s Development: Enhancing the Role of Private Finance, Development Report 2003, Development Bank of Southern Africa, 2003, p.119.


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