RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/79
21 December 2000
(00-5619)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
MOZAMBIQUE
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Mozambique is
attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Mozambique.Mozambique WT/TPR/G/79
Page 3
CONTENTS
Page
I. INTRODUCTION 5
II. ECONOMIC AND INVESTMENT ENVIRONMENT 5
(1) M ACROECONOMIC POLICIES 5
(2) F INANCIAL REFORMS 6
(3) I NVESTMENT POLICY 6
III. TRADE POLICY 7
(1) A GRICULTURE 7
(2) M ANUFACTURING 7
(3) T RADE POLICY IMPLEMENTATION 8
(4) M ULTILATERAL , REGIONAL OR PREFERENTIAL TRADING AGREEMENTS 8
(5) B ILATERAL TRADE AGREEMENTS 8
IV. EXTERNAL TRADE RELATIONS 8
(1) E XPORTS 8
(2) I MPORTS 9
(3) B ALANCE OF TRADE 9
V. INVESTMENT POLICY 9
(1) I NVESTMENT PROMOTION CENTRE 9
(2) M AJOR INVESTMENT INCENTIVES 9
(3) E XPORT PROCESSING ZONES 10
(i) Scope 10
(ii) Requirements 10
(iii) Industrial Free Zone Tax and Customs Regime 10(iv) Tax 11
VI. MOZAMBIQUE AND THE WTO 11
(1) A
PPLICATION OF THE WTO A GREEMENTS 11
(2) M OZAMBIQUE 'S POSITION REGARDING FUTURE NEGOTIATIONS 12
(3) C ONCLUSION 13Mozambique WT/TPR/G/79
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I. INTRODUCTION
1. Mozambique with a population of 17.5 million inhabitants, covers land area of
799,380 sq. km. in South Eastern Africa.  The land consists of a wide coastal plain rising to mountains
and bordering Tanzania, Zimbabwe, Zambia, Malawi, Swaziland and South Africa.  It is characterized
by a tropical climate with dry season running from April to September, during which time the climate
is pleasant although nights can get chilly.
2. Mozambique is quickly transforming itself into a dynamic, credible and customer-friendly
country able to provide a wide range of services.  Capitalizing on its strategic location and supported
by its key productive sectors:  agriculture, fisheries, manufacturing, tourism, construction and
electricity, Mozambique's economy is thriving.
3. Furthermore, she has registered strong economic performance over the last five years.  Strong
fiscal and monetary policies drastically reduced inflation to just 0.5 and 2% in 1998 and 1999,
respectively.  At the same time, the economy has achieved an average real growth of 10% per year
over the period 1995 to 1999.  Over the same period, the GDP per capita has increased significantly,
from US$145 in 1995 to reach over US$240 in 1999.  Though poverty remains widespread and
average incomes are still very low, Mozambique can point to important record of economicachievements.
4. To support the overall policy changes, a streamlined service-oriented public sector is
essential.  To this end, customs reform, public sector review and the operational systems underpinning
these are undergoing change.  The Ministry of Industry and Trade in collaboration with the other
Ministries is systematically working to signific antly reduce administrative barriers to trade and
investment.  To kick start the manufacturing and i ndustrial sectors and to boost exports, an industrial
free zone regime has been established.
II. ECONOMIC AND INVESTMENT ENVIRONMENT
(1) M
ACROECONOMIC POLICIES
5. Mozambique is a relatively small economy located on the eastern side of southern Africa.  Its
GDP is estimated to have reached about US$4.2 billion dollars, in 1999.  In U.S. dollar terms, GDP
per capita grew by about 13,5% per year from 1995 to 1999.  Part of this figure was due to changes inthe exchange rate, but even in local currency terms, adjusted for inflation, real per capita GDP was
rising by 7.4% per year over this period.  This rapid growth is having a significant impact on poverty.
6. Although the budget deficit is still high- it is estimated at almost 12% of GDP in 1999- it is
completely financed by international aid provided in the form of grants and concessional credits, as
well as external debt deficit.  Careful management of fiscal policy contributes to effective monetarypolicy, creating a sound basis for the continuation of a stable macroeconomic and financial
environment.  On the revenue side of the budget, the Government moved to broaden the tax base and
boost revenue performance by introducing the value-added tax (VAT) in June 1999, in place of
distortionary sales tax.  In the first half year of its operation, the VAT contributed to a slight increase
in revenue collections as a per cent of GDP, and the fiscal benefits should increase over time.
7. As a result of its good economic performance, Mozambique benefited from the highly
indebted poor countries (HIPC) initiative and was granted some US$3.4 billion in debt relief, in the
third quarter of 1999.  The Mozambican economy is still highly dependent from foreign assistance,
thus the current preparation of medium-term economic development and poverty reduction
programme aims at addressing this sustainability issue.WT/TPR/G/79 Trade Policy Review
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8. Real interest rates are still high, reaching levels of about 13-14% per year.  This is due to a
combination of factors including the need to enhance competition in the banking sector, the high
interest rates being paid on demand and time deposits, and the inherent risks associated with financial
investments in a poor economy that only recently achieved stability.  Over the past year, the real
exchange rate has been relatively stable against the U.S. dollar, while appreciating slightly against the
currency of Mozambique's main partner, the South African Rand.
9. Major structural reforms have also been pursued.  The country has finalized the privatization
of all state companies, and is currently preparing a strategy to deal with its remaining assets in the
productive sector.  A major civil service reform has also been implemented, with the definition of a
new career and remuneration programme for government employees in April 1999.  This programme
aims to improve institutional capacities, the management of government agencies, and for the firsttime, the Government closed its 1998 budget accounts and submitted the records for auditing.  These
have also been submitted to Parliament.  Hence, this is a major step towards fiscal efficiency,
accountability, and transparency, and the process will continue from now on.
(2) F
INANCIAL REFORMS
10. The main sources of growth in Mozambique have been a stable economic and political
environment combined with strong structural reforms.  For instance, the banking system is undergoing
a carefully phased process of liberalization and reform.  The last publicly owned commercial bank
was privatized in 1997, and the Government budget has cleared all bad loans to state companies, in
order to restructure and strengthen the banking system.
11. The decision brought a new era in Mozambique, by liberalizing the banking sector, the
objective being to introduce competition and thereby improve the quality of services offered to clients
through the participation of private banks and financial institutions.  However, it enunciate the roleand autonomy for the Bank of Mozambique (BM) to carry out its activities.  Moreover, it set
precedence for establishment of the capital market and securities authority in that spearheaded
formation of the Mozambican Stock Exchange in 1999, with the objective of establishing a secondary
market for securities and stock market.
12. However, since the capital/financial account of the Balance of Payment is yet to be fully
liberalized, participation of foreign investors in Mozambique Stock Exchange is still limited.
Liberalization of the banking sector removed monopoly of the state-owned banks and financial
institutions by allowing participation of private sector through privatization and/or establishment of
new ones thus creating competitiveness and hence efficiency in banking activities.  By the end of
1999, banks and non-bank financial institutions were licensed and are operational.  On the other hand,autonomy of the Bank of Mozambique was to ensure price stability in the economy.
(3) I
NVESTMENT POLICY
13. Mozambique's investment guide provides information on the huge economic potential and the
range of trade and investment opportunities.  Therefore, to take advantage of the country's economic
potential, the Government has identified five major infrastructure, agriculture and industrydevelopment areas.  These include the Maputo, Beira and Nacala development corridors, the Zambeze
Valley and the Lubombo Spatial Development Initiatives.  To realise the combined potential of these
ideally located geographic areas;  the Government invites serious project development partners.
Public and private partnership in development is a nationally endorsed concept.Mozambique WT/TPR/G/79
Page 7
III. TRADE POLICY
(1) AGRICULTURE
14. Mozambique has immense agricultural potential, with an estimated 36 million hectares of
arable land, with only 9 million currently in productive use.  It is the backbone of the Mozambican
economy, providing employment for 80% of the workforce, and contributing 25% to the GDP.  The
main exports are copra, cashew nuts, sugar cane, cotton fibre and tea.  Other products include sisal,tobacco, mafurra and sunflower.  In addition to the vast areas of arable land there are large tracts
suitable for livestock.  Following the war, livestock  farming is very underdeveloped, with much of the
present requirements having to be imported.
15. On particular needs are investments in poul try and pig production, and in the supply of
feedstock to these industries.
16. Rehabilitation of the existing agriculture-related investments including roads, rail, ports and
irrigation systems is a priority for the Government.  This should facilitate new investments, and
provide viable opportunities.  Key areas of development of commercial farming include Chokwe,
Massingir and Corumana which all have an existing network of irrigation.
(2) M
ANUFACTURING
17. A vigorous privatization programme, combined with strong foreign investment is having its
impact on the manufacturing sector.  Long neglected, there is a tremendous need for the upgrading of
old plants, and investment in new sectors.  The strong growth in the domestic economy, and not
inconsiderable market of 18 million is currently under-served, and consumer goods industries should
blossom.
18. The low cost electricity, combined with highly  competitive wage ranges should act as a major
catalyst for industrialization.  To support this process generous investment incentives exist and theGovernment has introduced legislation allowing the establishment of free zones for exports oriented
investments.  Mozambique's preferential access to major markets in the U.S. and EU should act as a
powerful magnate for many labour intensive industries.  Manufacturing currently accounts for some
10% of the total, but with the Mozal Aluminium Smelter Project, the contribution of the
manufacturing sector will rise significantly and should lay the platform for a massive downstreamindustry completely altering the structure of the Mozambican economy.
19. Priority sectors identified for development include:
- food processing and agro-industries (high priority- salt, sugar, copra, processed fish,
processed fruits and cashew nuts;  lower priority- milling, sisal, tea, bakery products,
pasta processed meat, tobacco, animal feed, dairy products and liqueurs);
- textile and clothing industries (which do not face any quota restrictions);
- soaps and oils;
- chemical industry;
- metallurgy (downstream of Mozal, and other products);WT/TPR/G/79 Trade Policy Review
Page 8
- metal working industry (construction materials, heavy equipment, furniture,
structures, tools and parts);
- packaging industry (wooden boxes, glass bottles, corrugated board, flexible
packaging).
(3) TRADE POLICY IMPLEMENTATION
20. Mainly the Ministry of Industry and Trade carries out trade policy implementation in
Mozambique under approval by the Mozambican Government.  However, there are also a number of
government departments or agencies, which play a role in the implementation of trade laws in
Mozambique.  The Government, in its revitalization programme, is committed to a policy of
broad-based liberalization as well as price liberalization to encourage investment.
(4) MULTILATERAL , REGIONAL OR PREFERENTIAL TRADING AGREEMENTS
21. Mozambique's external trade policies are designed to create an environment conducive to
promoting its products in international markets, especially those of the developed countries of Europe,
America, and Asia without prejudice to the promotion of intra-African trade.  Trade policies are
formulated with view to speeding up Mozambique's industrialization process, and in such a way to
make access to foreign markets easier for Mozambican products.  In pursuing these objectives,Mozambique has entered into multilateral, regional bilateral and preferential trade agreements as
mentioned below.  Mozambique is a signatory of  the WTO- World Trade Organization, World Bank,
IMF- International Monetary Fund, Lomé C onvention, SADC- Southern Africa Development
Community, IOR- ARC Indian Ocean Rims Association For Regional Cooperation, AGOA- African
Growth and Opportunity Act, GSP- Generalized Systems of Preferences and Trade Preferential
Agreement with South Africa.
(5) B
ILATERAL TRADE AGREEMENTS
22. Mozambique is currently in a process of negoti ations for bilateral trade agreements with the
following countries:  Algeria, Cuba, Egypt, Indi a, Kenya, Malawi, Mauritius, Russia, Zambia and
Zimbabwe.
23. Under these agreements, Mozambique and its contracting partners accord each other the
MFN- Most Favoured Nation treatment in all matters with respect to their mutual trade relations.These agreements have been used as instruments for promoting trade and improving economic
relations between Mozambique and these countries.
IV. EXTERNAL TRADE RELATIONS
(1) E
XPORTS
24. Mozambique's export earnings, continue to be generated mainly from exports of primary
agricultural products and seafood, including cashew nuts, prawns, cotton, sugar, timber, citrus and
others.  The major trading partners are South Afri ca, Portugal, Spain, the United States of America,
and Japan.Mozambique WT/TPR/G/79
Page 9
(2) IMPORTS
25. The main imports are intermediate goods and capital goods.  Energy imports, which include
mainly electricity and petrol products, have ranged US$85-90 million a year in the period 1996-1999,
and are expected to increase in 2000 as a result of the oil price increase.
26. In 1999, there was a general increase in the values of most categories, although imports of
non-food industrial supplies were reduced in the previous years (1998 and 1999).  This was mainly
due to:
- the liberalization of trade, through the removal of import licensing, quantitative
import restrictions and foreign exchange controls;  and
- implementation of Mozal Smelter Project.
(3) BALANCE OF TRADE
27. Mozambique's balance of trade has been relatively stable, with a deficit of about
US$550 million a year, during the period of 1995 to 1998.  In 1999, the balance of trade deteriorated
somewhat as a result of the construction for the Mega Aluminium Smelter Project, Mozal.
28. It should, however, be noted that even though liberalization has increased the volume of
imports, exports have also grown but at a lower rate than imports.
V. INVESTMENT POLICY
(1) INVESTMENT PROMOTION CENTRE
29. Investment Promotion Centre is a public funded institution, which was established in
February 1993 as a one-stop shop geared to promote investment in the country.  CPI processes all
applications for new investments and forwards recommendations to the Ministry of Finance and
Planning for approval by the Minister.  A general authority license is issued within one month with
prior approval from the relevant authority in charge of issuing the License.
30. CPI provides the following services and assistance:
- promotion, reception and registration of investment project proposals;
- facilitation of the concession of fiscal and customs incentives to investors;
- identification of potential partners for joint-ventures;
- identification and dissemination of investment opportunities;  and
- institutional assistance to investors in the implementation of investment projects.
(2) MAJOR INVESTMENT INCENTIVES
31. While the Government policy is to formulate and implement measures in favour of private
sector investment, the following represent a summary of current incentives:
- exemption from customs duties and consumption and circulation tax on:WT/TPR/G/79 Trade Policy Review
Page 10
- equipment for carrying out project feasibility studies, and investment project
implementation;
- building materials and equipment necessary to carry out an approved
investment project;
- light passenger cars for company representation, provided that the relevant
values do not exceed 1% of the value of the total project investment;
- raw materials, intermediate products and packaging materials for production
of export goods, medicines, educational materials and foodstuffs;
- raw materials, intermediate products and packaging materials for production
of other articles shall be exempted only for the first production cycle;
- 50% reduction the normal customs handling fees (thus paying only 2.5% of
the total value of the above-mentioned imported goods;  and
- foreign investor's and expatriate technical staff's personal belongings.
(3) EXPORT PROCESSING ZONES
(i) Scope
32. The Industrial Free Zone Regime applies to the two component parts of an Industrial Free
Zone, namely:
- the development and operation of the Industrial Free Zone infrastructure or estate
(Industrial Free Zone Developer);  and
- the operation of an export oriented manufacturing, processing or services enterprise
within an Industrial Free Zone (Industrial Free Zone Enterprise).
(ii) Requirements
33. There are two essential characteristics or requirements to qualify for Industrial Free Zone
status:
- job creation for Mozambican nationals;  and
- the production for export at least (85% of the product must be exported).
34. In the case of an Industrial Free Zone Developer, the establishment and management of the
installations for such export production are required.
35. Once initially qualified for Industrial Free Zone status, the operating certificate is issued after
construction and installation of the customs control and security procedures and installations.
(iii) Industrial Free Zone Tax and Customs Regime
36. Industrial Free Zone Developers enjoy an exemption from customs duties, VAT and Specific
Consumption Tax (including when payable on internal acquisitions) on the importation of buildingMozambique WT/TPR/G/79
Page 11
materials, machinery, equipment, accessories, accompanying spare parts and other goods destined for
the establishment and operation of the Industrial Free Zone.
(iv) Tax
37. Industrial Free Zone Enterprise pays no income tax on manufacturing and other Industrial
Free Zone activities.  Income from the sale and rental of Industrial Free Zone installations and from
the supply of services by Industrial Free Zone Developers is subject only to 1% fee on gross receiptsfrom the quarterly invoices for these services from the seventh year onwards after the date of the
issuance of the respective Certificate.
VI. MOZAMBIQUE AND THE WTO
(1) A
PPLICATION OF THE WTO A GREEMENTS
38. Since the coming into force of the Uruguay Round Agreements Mozambique like other
SADC members, has been significantly beset by problems arising from the implementation of these
agreements.  Indeed the Geneva Ministerial Declaration duly recognized the marginalization of the
least developed countries and certain small economies.  Therefore, the effective implementation of
WTO commitments by Mozambique, continues to be hampered by the lack of adequate financial,
institutional, technological and technical capacitie s, a situation that will be exacerbated by our
participation in new negotiations.
39. We call for renewed commitment to technical cooperation, through adequate provision of
resources in the regular budget of the WTO and other core agencies according to their mandates.
Furthermore, we emphasize the need for improved coordination in the delivery of this assistance as an
urgent requirement to facilitate effective participation on our part.
40. The development perspectives should first and foremost achieve the objectives spelt out in the
Preamble to the Marrakesh Agreement and should enable the world's people to share fully andequitably in the achievements of the multilateral trading system.
41. Consequently, this would bring about a sustained rise in the income of our country (as an
LDC) and would offer real prospects for economic growth and poverty eradication in this new
millennium.  We believe that more attention should be devoted to ensuring degrees of flexibility to
address the constraints faced by our country and others.
42. With regard to mandated negotiations, Mozambique acknowledges the vital role of the
agricultural and services sectors to its economic growth and development.  Therefore, the
development of the agricultural sector in the country  is crucial to trade growth, employment creation
employment, environment protection and social cohesion.  Bearing this in mind, the ongoing reform
and liberalization of international agriculture trade should lead to improved access to world marketsfor all our agricultural exports.  So, this should be achieved as follows:
- elimination of export subsidies which displace agricultural exports of developing
countries or impact negatively on their domestic production;
- elimination of tariff escalation and tariff peaks;
- reduction in domestic support in the developed countries;  and
- the obligation to formulate disciplines on export credits.WT/TPR/G/79 Trade Policy Review
Page 12
43. Beside this, it is important to note the greater effort that the Government of Mozambique is
doing in fulfilling their obligations on the WTO agreements as an LDC, nevertheless some
notifications must be done, taking into account the greater need of technical assistance and capacity
building for better understanding of these agreements at all levels.
(2) MOZAMBIQUE 'S POSITION REGARDING FUTURE NEGOTIATIONS
44. We attach particular importance towards achieving, among other outcomes, the following
objectives:
- Improved market access for products originating in developing countries, through
further lowering of trade barriers in areas of particular interest to these countries, such
as agricultural products, textiles and clothing, among others.
- Extension of bound, duty-free and quota-free market accesses for all products
originating in the LDCs.  It is a well-known fact that these countries share of the
international market is simply marginal (it declined from 0.8% in 1980 to 0.5% of
world trade today, according to the 1999 UNCTAD report on LDCs).  Duty-free and
quota-free access for their products would represent a meaningful political
commitment to helping them address some of the most daunting challenges of ourtime, such as the extreme poverty.
- Adoption and implementation of capacity building strategies and programmes aimed
at addressing the inextricable link between increased market access and improved
supply capacity.  The elimination of trade barriers needs to be complemented by
appropriate measures to help the LDCs overcome their infrastructure and institutional
weaknesses, including investment areas such as health care, education and other
social concerns.  We need a WTO that actively engages in a real partnership with theUnited Nations, the Bretton Woods institutions and other international organizations
in the search for and adoption of integrated and effective technical assistance
strategies, tailored to developing countries needs, including appropriate funding
mechanisms.
- Adoption of a new global partnership that involves advancing sustainable
development strategies that put people at the centre stage of development, by the
provision of basic human development levels for all people.  A partnership that
involves a constructive dialogue between governments, the private sector, the NGOs,
the civil society at large, and ultimately, a partnership that entails a strong support to
developing countries and the LDCs in their efforts to integrate themselves into the
world economy, by focusing on the identification of targets and objectives such as
poverty eradication, improved market access to health, education and food security.
As an LDC, Mozambique believes in the merits of a new round of trade negotiations
that encompasses a development dimension.
- Greater understanding of the need to embrace more creative solutions to debt relief.
While we appreciate the HIPC initiative, we would like to emphasize the importance
of improving its implementation mechanisms.  In this regard, we would also like to
praise the efforts currently being undertaken by G-7 and the Bretton Woods
institutions, and urge developed countries to seize this momentum and embark on
efforts aimed at matching debt relief with improved market access initiatives.  This isMozambique WT/TPR/G/79
Page 13
crucial for the effective mainstreaming of the LDCs into the multilateral trading
system.
- Concurrence of the entire WTO membership to the need to renew the waiver granted
to ACP-EU countries in order to allow the continuation of existing trading
arrangements until the end of the preparatory period and beyond, if necessary.  This
will help address specific trade concerns and needs of 71 developing countries,comprising 48 LDCs and 29 WTO Members.  We believe that the reasons underlying
the extension of this waiver still prevail and deserve positive consideration by WTO
Members.
(3) C
ONCLUSION
45. Bearing the above in mind, we would like to stress that trade cannot be seen as an end itself,
nor can it be seen as the only answer to the challenges facing today's world.  We need investment,
infrastructure, education, training and skills to take advantage of the opportunities offered by
globalization and liberalization.  Therefore, we favour an approach that includes embracing new
creative cooperation paradigms, in order to turn trade relations into an important tool in our
endeavours to provide better living standards to our people.
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