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Mozambique’s vast hydro-power project could create a regional energy hub

Mozambique is a scenic country in southeastern Africa and its capital, Maputo, is the commercial and cultural centre. The country is rich in natural resources, is biologically and culturally diverse, it has a tropical climate, and its beautiful beaches are an important attraction for its growing tourism industry.

Its extensive coastline offers some of Africa’s best natural harbours, which has enabled Mozambique to play an important role in the maritime economy. Furthermore, the Zambezi River and the country’s hydroelectric dam network including the Cahora Basa Dam and the Kariba dam provide ample water for irrigation and the basis for hydroelectric power.

Opportunities abound

Mozambique’s greatest opportunity lies in the exploitation of the country’s diverse resources, says Thera Dai, lawyer at CGA & Associados in Maputo, and a member of the LEX Africa legal alliance.

“This fact stimulates the appearance of new market segments not yet explored in the local market. There are great possibilities for business success in transport and logistics, energy, information and communication technologies (ICT), capital markets, agribusiness, banking, insurance and textiles,” she says.

With the exploration of these resources, the country can make a qualitative and quantitative leap forward towards development, says Dai. “Obviously, linked to this factor, is the correct management of resources, which necessarily implies a fierce fight against corruption, which has proven to be one of the biggest factors holding back development in African countries.”

Major challenges

Mozambique’s main challenges include maintaining macroeconomic stability, considering exposure to commodity price fluctuations and making further efforts to reestablish confidence through improved economic governance and increased transparency, says Dai. Moreover, structural reforms are needed to support the struggling private sector.

“That, and diversifying the economy away from its focus on capital-intensive projects and low-productivity subsistence agriculture, while strengthening the key drivers of inclusion, such as improved quality of education and health service delivery, could in turn improve social indicators,” she says.

“Another of the country’s greatest challenge is to stop the escalating conflict in the north of Mozambique, specifically in Cabo Delgado. This caused oil and gas exploration operations to come to a standstill.”

She says, in terms of monetary policy, the central bank is making an effort to contain the inflation rate, which is influenced by factors such as pressure on fuel prices, and reduction in the supply of cereals and fertiliser. “To that effect, measures have been taken to improve the internal production in order to minimise the external dependence.”

Economic outlook

The Mozambican economy is going through an economic recession, firstly because of weak public investment due to the withdrawal of approximately half of the state budget support. This and the discovery of undeclared debts pressured the domestic market, says Dai.

On the one hand the state is using all possible mechanisms to increase domestic revenue to meet public expenditure, leaving aside public investment, which is a great source of motivation and boost to the Mozambican economy.

On the other hand, the state, which is the biggest client of Mozambican companies, has ceased to pay its suppliers’ invoices, with delays of up to three years in some sectors.

To make matters worse, the COVID-19 pandemic left a large part of the Mozambican business sector in great difficulties, says Dai. “This in turn impacted families who have seen their incomes decrease by 75%, thus reducing the purchasing capacity of the population.”

She says Mozambique is a major exporter of electricity, “and the countries in the region are facing energy challenges, so the construction of new dams is clearly an option for economic growth.”

The Ministry of Mineral Resource and Energy (MIREME), through the Mphanda Nkuwa Hydroelectric Project Implementation Office, is developing a 1,500-megawatt hydro-power project and associated transmission facilities, says Dai.

Once completed, the project is expected to supply power to meet the growing domestic demand in Mozambique and transform the country into a regional energy hub.

“The rest of the project’s output is expected to be exported to neighbouring countries, including South Africa, where demand for clean energy is high. The project will also accelerate the transition to clean energy to combat climate change in Southern Africa,” says Dai.

The estimated US$4.5 billion project will comprise a dam, a power station, and a high voltage transmission infrastructure of 1,300 km from the project site in Tete Province to Maputo, Mozambique’s capital.

Mozambique is also an important logistic pole for the flow of goods from the countries of the hinterland.

Significant new legislation

Mozambique has introduced several new laws to date in 2022. These include three important laws approved on 25 May which will enter into force on 22 September 2022, says Dai, namely:

  • a new Commercial Code which revokes the current one;
  • a Legal Regime of Credit Titles (currently incorporated in the existing Commercial Code); and
  • a Legal Regime of Commercial Contracts (also currently incorporated in the existing Commercial Code).

The new Commercial Code will bring many changes aimed at improving the business environment, says Dai.

These include the possibility and recognition of virtual meetings of the companies´ corporate bodies, and the strengthening of the corporate governance of the companies. Examples of the latter are:

  • creating/strengthening protection for minority shareholders,
  • greater accountability for management and directors,
  • greater transparency of true ownership – elimination of bearer shares and other securities and mandatory identification of the effective controlling shareholder,
  • the introduction of new types of companies,
  • elimination of public deeds,
  • introduction of some concepts from Anglo/Common Law, and others.

The Legal Regime of Commercial Contracts, approved by Decree-Law no. 2/2022 is a major change. It compiles all rules of interpretation, provides for many commercial contracts previously not contemplated and incorporates many UNIDROIT principles and the principles of HCHH on the International Private Law.

The Mozambican Electricity Law, approved by Law no. 12/2022 on 11 July 2022, revoked the previous Electricity Law no. 21/97 of 1997. The new Electricity Law creates conditions for the opening up of the electricity sector to the private sector, through the legal regime of concessions.

“This document, authored by the Government, aims to adapt the legal framework to the challenges of universal access to energy using all energy sources, especially renewable energy sources. In addition, the new Electricity Law aims to help promote the reduction of greenhouse gas emissions,” says Dai.

The Law on Money Laundering and Counter-terrorism, approved by Law No. 11/2022 on 07 July 2022, establishes the legal framework and measures for prevention and repression in the use of the financial system and non-financial entities, for the purposes of money laundering, financing terrorism and financing the proliferation of weapons of mass destruction.

The Law will apply to financial institutions and non-financial entities based in national territory, as well as their branches, agencies, subsidiaries or any other form of representation, and to other institutions likely to engage in money laundering, terrorist financing and financing of the proliferation of weapons of mass destruction as criminal conduct.

This is in accordance with the Conventions and Resolutions of the United Nations Security Council and adjusts the content of existing legislation to the new international normative standards in this area, says Dai.

“One of the innovations is the obligation of all non-profit organisations to present their accounts to the State.

“The Government wants all non-profit organisations, namely churches, foundations and non-governmental organisations, to start declaring their accounts relative to expenses and revenues, for a better control of their activities,” she says.

 

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