Jun. 30, 2015


João Machado

Mozambique

João Machado

Managing Partner, Deloitte Moçambique

TBY talks to João Machado, Managing Partner at Deloitte Moçambique, on integrating with the the Mozambican market and changes to FDI in the coming years.

BIO

João Machado was appointed Country Managing Partner in Maputo, Mozambique in 2014. João has also been leading Consulting in Mozambique for Deloitte Africa since April 2013. He joined Deloitte in 1999 in Portugal and has over 15 years of experience as a consultant, having worked in the Portuguese, Angolan and Mozambican markets. He has worked on a variety of leadership roles covering areas of strategic and operational consulting, organizational design, human capital and business transformation.

What are the peculiarities of the Mozambican market and the most common concerns of a foreign company interested in entering the country?

When entering any market the most important aspect is access to local knowledge, detailed information and quality advice so as to correctly assess the potential for success of a venture into the country and limit risk. There are a number of sources that can be tackled for that purpose, such as international financial institutions, commercial banks and professional services firms. Although business culture is somehow difficult, with a different legal system, Mozambique is quite a secure and investor friendly environment, as long as the proper “homework" is done and the Mozambicans are not taken for granted.
How would you assess the current level of foreign interest in the country and what needs to be done, by the public and private sectors, to create new incentives and improve the environment for foreign investors?
The level of investment continues to reach new records for the Southern Africa region. I believe that from a Mozambican perspective the incentives have to be broad based and not only for foreign investors. The first indicator in terms of whether a country is ready for foreign investment is thriving local businesses that are adding value to the economy. Mozambique has to honor the contracts it has made in the past in order to incentivize foreign investment, but more than that, it has to level the playing field in such a way that national and foreign business can compete with integrity, thereby becoming a global example. The rules have to be complied with by all, and must be the same for all. If this is adhered to, everyone benefits, be they foreign or national interests.

What regulatory changes are we likely to see over the medium term in Mozambique?

The regulations Mozambique is expected to approve over the coming months include the first Transfer Pricing regulation, which will permit the creation of greater value companies resident in Mozambique in inter-firm commercial relations. The value added tax code is also under review. We also foresee that the tax benefits that today exist for foreign and national investors will gradually subside and probably create an environment conducive to reviewing the tax rates for all. Our corporate tax rate at 32% and VAT at 17% are quite high for the region. Probably the new tax reform will help the formal, until the informal sector of the economy is gradually absorbed by the formal and tax paying economy.

How would you describe the role of SMEs in Mozambique and how can Deloitte assist the development of a more efficient SMEs structure?

Of the total number of companies operating in Mozambique 98% are SMEs, although they merely contribute 20% of GDP. SMEs are the backbone of the Mozambican economy and are far more labour intensive than large companies. SMEs employ most of the working population in the country, creating self-employment and third-party employment, and are the only source of endogenous growth, which is the most robust form of sustainable long-term growth for the economy. Even in turbulent times, when commodity prices decline, or political risks increase and FDI falls, SMEs remain in business.

Additionally, SME production reduces the need for imports, whereby Mozambican income stays in the country to stimulate the supply side (more production) instead of going abroad.

However, SMEs face a tougher business environment than micro and large enterprises as:

- They do not qualify for some of the tax and regulatory provisions of the micro enterprises, despite creating more employment;

- They do not get the exemptions and benefits of mega-projects;
- They are more vulnerable to red tape than large corporations as they lack the financial and networking capacity to “fast-track" administrative processes.
At Deloitte we understand the “inner workings" of SMEs as we serve a large base of clients in this segment across all our business areas from auditing, accounting, tax and strategy, to operations, innovation, technology, human resources and financial advisory.
We help our clients consolidate their operations, become more competitive and efficient, and grow their business, generating profit and creating more employment.
We also facilitate investment into these companies as we have a wide global network and contacts with international companies.

How would you describe Deloitte's role in the socioeconomic development of the country?

We believe we add considerable value locally both from a business and human capital perspective. We serve a variety of companies, from market entrants to small companies, large multinationals and public companies.
Deloitte, as the largest professional services firm in the world, understands how to make SMEs more competitive vis-à-vis regional and international enterprises.
Over the past few years we have been serving SMEs in Mozambique through linkages and supplier development programmes with donors and business associations, capacity building activities, improving value chains and identifying markets, preparing bankable business plans for SMEs and supporting our SME clients access finance.

By helping SMEs to become more competitive and generate more value they will contribute with more taxes to the government and generate greater employment opportunities for Mozambicans. In this manner the government becomes less aid-dependent and Mozambicans enjoy greater economic sovereignty than when relying on “financial hand-outs" from other countries.

By linking enterprises from different sectors (as we deal with SMEs from all sectors: financial, natural resources, infrastructure, etc.) we also create “space for business opportunity" and collaboration. For example, we assist SMEs with bankable business plans so they can convert their business ideas into financing from financial institutions.

As recipients and custodians of a wealth of business information we also act as a market development force for the country, advising the Government and Business Associations on how to reduce the incidence of market failures, informational asymmetries and other constraints than inhibit local (endogenous) economic growth.
As a global company we practice global quality standards, which are much needed by SMEs to be able to serve large corporations in the extractive and industry sectors (and therefore realize market opportunities).
We also employ a large labour base of Mozambicans—95% of our workforce is local—and invest in their development. The skills and knowledge that our professionals gain from Deloitte gives them the ability to be successful in any business environment and face any business challenge.

We believe that our contribution is significant in developing successful entrepreneurs and providing the market a solid and skilled workforce.

What is your 10-year outlook on Deloitte in Mozambique?

Deloitte will become the undisputed leader in quality professional services in Mozambique, as we are in the rest of the world.

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