Focus: Industry

Strong Foundations

Strong Foundations

May. 9, 2013

A variety of fields such as building materials, agribusiness, and energy production contribute to the increasingly buoyant industrial sector.

Laying the groundwork for the development of the sector, the Mozambican Economic and Social Program for 2013 outlines the creation of 216,000 jobs, 162,000 of which will be established in the private sector. Many of these new positions will be involved in the country's large private sector-led projects, worth an estimated $6 billion. Innovative initiatives in agro-industries with products such as sugar and biofuels, as well as three new thermal and hydroelectric plants, a petrochemical plant, and a cement factory, are also bolstering the government's plan and strengthening the potential of local industry.

Although improvements in light industries such as food, textiles, brewing, soft drinks, chemicals, cement, oils, and soaps are key to the sector's development, the rapidly growing mining sector will propel the construction industry into a leading role in 2013. The increased production of building materials such as aluminum, iron, and steel is expected to alter the configuration and importance of the sector.

The country's shining industrial star and largest aluminum producer is Mozal, a company that produces 580,000 tons annually. These goods constitute 30% of the country's exports, with the lion's share shipped to the Netherlands. However, with the anticipation of Mozambique's energy production to rapidly increase, the doors have been opened for energy-intensive metal production in country. Eager to retain a significant portion of Mozambique's natural resources for value-added production, the government is pushing policy incentives for domestic industry. The world's largest manufacturer of aluminum cables, Midal of Bahrain, intends to construct a factory to make use of Mozal's aluminum and produce cables domestically.

The clearest incentive for the industry sector revolves around the establishment of Free Industrial Zones. Founded in 2007, the Special Economic Zones Office (GAZEDA) has unrolled plans for several zones around the country, with a particular focus on heavy duty industry development such as the processing of iron ore, fertilizer, and chemical plants. Although these zones are not considered “free zones," the companies operating within them enjoy specific tax incentives, which are slightly different from the general guidelines. Incentives include a 60% reduction on income tax for a period of 10 years after the beginning of the investment, a rebate on transfer duty paid on the sale and purchase or any other form of transferring fixed property, and exemption from customs duties on the importation of building materials, machinery, equipment, accessories, and spare parts. The country's developing tax system has drawn criticism from private sector players with regard to its perceived negative impact on business development. However, companies operating in the industrial zones are exempt from the 17% value-added tax (VAT) and excise duty on specific goods (ICE), both on imports as well as on purchases in the national market.

The leading zone is Beluluane Industrial Park, home to Mozal and its numerous supporting services. The year 2011 saw the first non-Mozal related business operating and trading from the park.

A new metallurgic hub is also emerging near the mining province of Tete, with an increasing number of junior miners turning their attention to steel and iron. The London Stock Exchange-listed Baobab Resources is pushing forward on the strength of the results of its 2011 Scoping Study to develop a vertically integrated mine-mouth smelting operation producing high-value pig iron. Ben James, Managing Director of Baobab Resources told TBY, “As with any value-added product, you need to be in the right place when it comes to iron and steel production," and Tete couldn't be better positioned. “In Tete we are at the strategic confluence of these resources; Baobab's Tete iron ore project is flanked by some of the largest coal deposits left on the planet and is downstream from southern Africa's largest source of hydro-electric power," he added. Meanwhile, Indian steel giant Jindal also has its sights set on using the coal-rich province of Tete for the production of steel. According to Manoj Gupta, Country Manager for Jindal Africa, the company's intention “is to support the coal industry to earn money from steel… if we get iron ore, then we would be interested in setting up a steel plant here."

FOOD & BEVERAGE

Although Mozambique's agricultural potential has long been known, it is only recently that international processing companies have heeded the call. Given the country's access to a potential population of 250 million people across the Southern African Development Community (SADC) consumer base, combined with more affordable resources, interest from international FMCG producers is expected to surge. Companies such as soft-drink producer Sumol+Compal Moçambique are already investing heavily in Mozambique to tap into the lucrative South African consumer market. Company CEO in Mozambique, Adolfo Correia, confirmed this strategy in an interview with TBY, explaining that “Direct access to the SADC market is key for the establishment of consumer-goods industries." In addition, as South Africa's industrial sector endures a rough patch, entrepreneurs have their sights set on Mozambique. Correia hopes that the Portuguese company will be able to replicate its success in Sub-Saharan Africa by taking advantage of an industrial slowdown in South Africa. “Sumol+Compal Moçambique is a European reference considering its know-how, long-run expertise, and the state-of the-art equipment it uses," he told TBY. “The strong competition we find in Europe and worldwide has turned Sumol+Compal into a leader in terms of production standards, and that will also be the case when compared with South African producers. We believe we have a clear advantage comparing with the present state of South African industry."

The beer market has also shown strength, in part thanks to the government's tax cut on beer made from cassava to 10% compared with 40% for beer made from malt. This incentive was designed to encourage the use of locally grown crops. The provinces of Cabo Delgado, Zambézia, Inhambane, and Nampula are the country's largest producers of cassava, and the sector is made up of 70% family-based producers on average. Tobacco production saw a positive trade balance of $168 million in 2011, although 99% of exports were unmanufactured tobacco. The government seeks to encourage increased domestic value adding.

AUTOMOTIVE

Mozambique's mining sector is projected to grow by 417% over the next five years, creating a huge demand for transportation. The trickle-down impact of mining megaprojects is most likely to affect the country's nascent automotive sector, with Business Monitor International forecasting strong average growth of 7.3% per annum in the automotive sector leading up to 2016. The driving segment will be light commercial vehicles, which are needed to meet the demand of burgeoning mining investments. This activity will, in turn, stimulate the repair and spare parts sector. In terms of passenger vehicles, the passenger car fleet density, or number of vehicles per 1,000 people, is projected to jump from 8.1 in 2012 to 9.5 in 2016.

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