Mozambique’s strategic location, along with new free trade agreements, opens access to a market of more than 1.3 billion people. The country quickly became a rising star in Southern Africa’s trading landscape and, with it, the most promising site for global investors. Situated along the southeastern coast of Africa, Mozambique boasts an impressive 2,500-kilometer stretch along the Indian Ocean, putting it at the front door of both African and global markets. Rich in natural resources, with growing related infrastructures and proactive trade policy initiatives, Mozambique has quickly become an attractive haven for international investors. This blog talks about Mozambique’s free trade agreement, which is a game-changer for investors. Let’s start!

FTAs are agreements between countries to reduce or eliminate tariffs, import quotas, and preferences for most goods and services traded between signatory nations. The FTAs aim to promote trade and investment by easing and reducing the costs of cross-border business operations.

Strategic Position: By its geographical position and infrastructure, Mozambique is the entranceway to a market of 1.3 billion people.

AfCFTA Impact: The African Continental Free Trade Area is an initiative that interlinks 54 countries to promote trade and economic cooperation.

These are the cost and efficiency benefits of FTAs: lower tariffs, simplified customs procedures, and new market access.

Investment Opportunities: In addition, developing the agriculture, manufacturing, and natural resources sectors provides a good backdrop for investment opportunities.

Challenges and Opportunities: More competition spurs innovation; the local regulatory environments are important to learn from.

• Long-Term Potential: Strategically, Mozambique is well-positioned and facilitated for long-term growth with its strategic trade agreements and resources.

The AfCFTA Gamechanger

In 2022, Mozambique ratified the AfCFTA, the body uniting 54 nations on the African continent into what is perceived as the world’s largest free trade zone. With this, the agreement seeks to integrate the market of 1.3 billion people by promoting trade by reducing tariffs on 90 percent of goods, removing other trade barriers, and enhancing economic cooperation among participating nations. It is expected that AfCFTA will increase intra-African trade by 52.3% in 2022, with a potential revenue gain of $292 billion by 2025, according to an African Business report.

Beyond AfCFTA

Mozambique has signed essential FTAs with other countries and trading blocs, improving its export potential. The SADC Trade Protocol, for instance, helps expand market access for trade among its sixteen member states. Furthermore, examples include the Mozambique-US TIFA, which escalates its level of bilateral trade and investment. This has increased Mozambique’s exports to the world’s biggest markets.

Existing Agreements

Mozambique is also a signatory to the Economic Partnership Agreement with the European Union, which qualifies for duty-free and quota-free access to the EU market for most Mozambican products. In addition, the SADC Trade Protocol has been instrumental in promoting regional trade and increasing intra-SADC trade by an unprecedented 35% since coming into effect. Overall, these make Mozambique one of the giants engaging in regional and international trade.

Cost Advantage

FTAs eliminate or significantly lower the tariffs on imports/exports and hence make Mozambique a much cheaper destination for investors. Cost advantage to sectors such as manufacturing is therefore significant. It can bring down production costs considerably with lower tariffs, thereby improving competitiveness. Estimates by the World Bank show that production costs in this sector may fall by 12% in the country due to eliminations under AfCFTA.

Market Expansion

With FTAs, investors in Mozambique can have easy access to big regional markets for their products, enabling them to sell beyond the country’s borders. The improved access most benefits some sectors such as agriculture, manufacturing, and natural resources. This possibility of access to a combined GDP of $3.4 trillion across AfCFTA countries exposes vast new growth opportunities from business operations, especially for the African Business sector.

Trade Efficiency

FTAs simplify customs procedures and regulations, thereby reducing red tape in trade. The ease of business is central to FDI flows and consequent economic growth. Since Mozambique has put in place mechanisms and measures to enhance customs efficiency, it has reduced average port clearance times from 72 hours to 24 (African Business, Trade.gov).

Data-Driven Decisions

Recent data from the World Bank and other credible sources identify some of the realistic sectors in Mozambique that are bound to draw much benefit from FTAs:

• Agriculture: With its fertile land and favorable climate, Mozambique is suitable for the growing of such cash crops as sugar, tobacco, and cashew nuts. The agricultural sector employs some 70% of the population and contributes close to 25% to GDP; considerable export potential exists under the FTAs.
• Manufacturing: Though tariffs have been pared by 30%, and expanded market access creates an opening up of the textile and garment industries, the sector is likely to sustain an 8%-plus annual growth rate over the next decade. That would be led by investment in textile production and garment manufacturing for exports.
• Natural Resources: Mozambique is rich in minerals and natural gas. There are lucrative business opportunities in extraction and processing. It holds the world’s fourth-largest reserves of natural gas, with an estimated 100 trillion cubic feet of proven reserves. Indeed, this area alone could attract billions of dollars in FDI, significantly increasing economic growth.

Competition Breeds Innovation

One of the challenges can be that an FTA increases the competition from the regional player. But, again, such competition also keeps pushing the industry toward innovation and efficiency, which can benefit all the stakeholders. Mozambique businesses are adjusting by adopting new technologies and practices to remain competitive in the regional market.

Understanding the Landscape

For a smooth entry, investors need to search out specific investment regulations and procedures in Mozambique. Indeed, knowing the local business setting, legal requirements against such initiatives, and market dynamics is essential in ensuring success. According to the World Bank’s Ease of Doing Business Index, Mozambique is still ranked 138 out of 190 nations, with significant room for improvement in starting a business and enforcing contracts.

Recap the Benefits

Its location is strategic, with robust FTAs and a growing economy that gives excellent access to the vast African markets. At the same time, its commitment to regional integration and economic development ensures solid long-term growth prospects.

Long-Term Potential

The rich supply of natural resources, strategic trade agreements, and continued infrastructure development underpin the growth potential of Mozambique. Investment-related opportunities are myriad as integrating them into regional and global markets gains steam. If that were not enough, the government presents Vision 2025, which envisions Mozambique as a middle-income country and outlines a strategy to keep it there by maintaining economic growth through diversification, according to Trade.gov.

Explore the vast investment opportunities in Mozambique today. The country’s strategic location, favorable trade agreements, and growing economy offer a unique gateway to thriving African markets.