Heavy Metal

Rising incomes, a broadening consumer base, and a steady stream of new investments and projects coming online are creating boundless opportunities for the country’s industrial sector. The latest statistics from the World Bank showing that industry accounts for 20.8% of the country’s GDP and employs 40% of the population. Making a name for itself in several diverse and growing markets as well as in Special Economic Zones, Mozambique is developing an ideal business environment and distinguishing itself on the international scene. Consolidation of factories in industrial centers is essential for manufacturers in the country due the lacking infrastructure, limited power supply, and high transportation costs across its expansive geography. Companies like Barbot cope with the challenge by transporting the precise quantities of their products ordered by their clients in trucks to cut cot costs. However many domestic benefits outweigh the challenges faced by the industrial sectors. “One of the main advantages in Mozambique is having a government that is willing to work with investors and businesses to actually create opportunities. An advantage for larger investors like Mozal, is the ports along the coastline, which ensure efficient logistics and access to our raw materials,” Mozal’s Asset President Daniel Murray told TBY.

HELTER SMELTER

While Mozambique’s natural gas resources put the economy on the map as a top global performer, the country’s metals and minerals industries play a significant role in international markets, particularly with aluminum, iron, and steel. BHP Billiton’s Mozal smelter, the largest company in Mozambique, was established in 2001 and contributes 7% to the country’s GDP, producing 570,000 tons per annum of primary aluminum ingot. However BHP Billiton announced last year their plans to demerge their aluminum business, along with manganese, nickel, and silver, to create the company South32 to operate these assets, according to Murray.
The need for domestic development and growing potential in several sectors—such as LNG, construction, petrochemicals, and agro-industrial—promise strong and steady growth rates for metals through the long term. Mozal has confirmed the country’s strategic status for industry, and the readily available raw minerals have allowed companies like Midal Cables to flourish, though Mozal’s primary market is designed for export to Europe. Midal was the first local market for the downstream industry, currently running a production capacity of 50,000 aluminum wire rods and 22,000 tons of overhead conductors out of their $70 million factory that was completed December 2014. Mozal has also been a major boon for the transportation sector through road-access projects and port development, importing more than one million tons of alumina per annum through the port. Major infrastructural projects planned such as bridges and gas projects in Nacala and Pemba are set to drastically increase demand of steel and rebar, and Ferpinta Moçambique has already grown 15% in 2015 according to their General Manager Romeu Rodrigues.

The construction boom has also been beneficial for paint manufacturers Barbot, whose factory was constructed in 2014 with a production capacity of 1.5 million liters following an investment $1.2 million, and is operated by 15 workers. According to João Carlos Barbot, Administrator of Barbot Moçambique, a main challenge for the paint industry is the country’s proximity with competitors in South Africa. “The local tax regime should be amended to raise import duties on paint,” Barbot told TBY. “In Angola, for example, imported paint incurs duties of 60% of the product cost, whereas the figure in Mozambique is just 20%. This is unfortunate as it curbs the motivation invest in developing quality local alternatives.”

LET’S HAVE A DRINK

FMCGs represent a major portion of the country’s manufacturing industry, particularly with beverages and tobacco. “Room for growth is endless at the moment,” says Simon Everest, Country Manager of Coca-Cola Sabco, which has influenced Coca-Cola to up investments in existing capacity in the Maputo and Chimoio facilities, in anticipation of increasing disposable income in the country. Currently under development, the 21-ha Maputo plant will ultimately have seven lines in place, expected to provide sufficient capacity until 2022, after which additional lines will be added; its first line will go into production in 3Q2015, the second at the end of 2015, and the third is set to be commissioned in 1Q2016. Due to electricity grid challenges, the plant will most likely have to initiate operation running on generators. Another recent innovation for the bottling industry are PET polymer bottles—lightweight, easy to transport, unbreakable bottles preferred for packaging many foods and beverages. Coca-Cola has recently invested $130 million in their Maputo PET line factory, $20 million in Chimoio, and $15-20 million in Nampula, which require fewer people to operate and produce four times the quantity.

The country’s most prominent beer brand 2M was established 50 years ago, and Mozambique’s oldest brand Laurentina is over 80 years old—both are exported to South Africa and Portugal along with Manica beer, the country’s third major label. Employing close to 1,400 workers, Cervejas de Moçambique (CDM) produces 2 million hectoliters of beer with three breweries in Maputo, Beira, and Nampula, operating at about 75% capacity, with plans for major extension in each of their breweries; they are also the country’s largest tax contributors according to their Managing Director Pedro Cruz, amounting to nearly $200 million in 2014. In addition to beer, CDM produces alcoholic fruit beverages and Chibuku, a traditional African beer with a lower alcoholic content, made from sorghum and maize, as well as Impala—the first beer in the world to be produced from the high-carbohydrate cassava root. Impala is derived from small-scale farms and locally processed materials, enabling the employment of locals as opposed to subsistence farming, with two mobile cassava-processing units moving from field to field, and packaging cassava for transportation to breweries. CDM’s has also recently launched the lemon and orange-flavored beer Flying Fish, imported from its main shareholder South African SAB Miller, with plans to produce locally if successful.

In terms of the spirits industry in the country, according to Miguel A. Soto, Regional Manager of Southern African Emerging Markets (SAEM) at Diageo, “growth of mainstream spirits is limited by the large number of competitors in the market selling in extremely small formats at exceptionally depressed prices. We believe that is unsustainable in terms of quality, in terms of consumer choice, as well as legislation.” Spirits producers like Diageo are currently working with the government to further regulate import taxes on spirits, and the government has created new legislation regarding the production, marketing, and consumption of alcoholic beverages. Diageo’s new innovative facility “The Cube,” initiated production in 2014 launching two brands of spirits—Gilby’s Gin in 75cl and 25cl format, and Master’s Choice in 20cl, in addition in to producing Smirnoff Spin. The plant is 100% locally operated, with total investment nearing $20 million.

LIFE IN THE FAST LINE

Following a 2010 agreement and an estimated $200 million investment from Shanghai-based Tonjian Investment Co., Mozambique started to manufacture its first automobiles last year. The initial agreement outlined the facility would produce 10,000 vehicles a year though Tongjian plans to building 30,000 in the initial year of production, to expand to 100,000 units in 2016 and 500,000 by 2020. The Matchedje brand’s factory is located in the Machava area of Matola, and put its first car on the market in September 2014—a four-wheel-drive pick-up that will be marketed for $23,700, according to Bloomberg. South Korean manufacturer Hyndai also opened a car assembly plant in Matola last year, following an agreement between South Korea and Mozambique called Somyoung Motors. A $5.45 million private investment between Mozambican Somotor and South Korean YoungSom went towards the construction of the factory and purchase of the vehicle assembly equipment. The installed capacity of the plant aims to assemble 4,500 cars annually, from 1,200 units in 2015 and 2,500 in 2016.

Accounting for 7% of industrial production, production in the tobacco industry has increased rapidly over the past ten years, covering 73,630 ha out of 321,314 ha of total cultivated area of cash crops, according to the Food and Agriculture Organization of the United Nations. Tobacco accounts for nearly 34% of total agricultural exports and almost 4% of total exports of good and services, recent official statistics show. The sub-sector has operated in a concessionary system since 2002, with the government granting tobacco companies closed concessions as exclusive buyers in specific geographical areas, and the majority of Mozambican tobacco companies are subsidiaries of multinational tobacco corporations who operate in economies of scale by concentrating cigarette manufacturing in a determined geographical location. Part of the success of Mozambique’s tobacco sector can be attributed to the collapse of Zimbabwe’s tobacco industry in the early 2000s due to political instability, relocating investments to Mozambique. Tobacco cultivation is predominately carried out in the three provinces of Tete, Niassa, and Zambézia, which together account for 90% of tobacco production in the country. A major player in the tobacco industry is British American Tobacco (BAT), at a 70% capacity of 3.5 billion cigarettes, which plans to improve machinery and facility efficiency in the short-term. According to BAT’s General Director Crispin Achola, the country’s tobacco industry is a high growth potential market due to the improving economic circumstances of the population leading to an increase in sales volumes and brand mix.