In the investment process, Mozambique’s manufacturing sector offers many opportunities but also faces many challenges. The growth prospects offered by the sector, coupled with various economic, infrastructural, and policy-related factors, create a complex investment landscape. Drawing on key recent research and data, this blog outlines the current state of the manufacturing sector in Mozambique, the critical areas of investment, and the challenges it faces.

Mozambique’s manufacturing sector is still growing but faces serious challenges.

Key investment areas: infrastructure, energy, and technological development.

Economic and policy environments pose barriers to investment.

Political and social stability represent a key requirement for growth to be sustainable.

Future prospects look promising with strategic investments and reforms.

The growth of the manufacturing sector in Mozambique has been gradual, but there are a lot of challenges. More recent firm survey—the Inquerito as Industrias Manufactureiras 2017—pointed to concerns about the health of the sector. This is therefore tempered by triangulation with other indicators suggesting the sector is growing at similar rates to the population, in particular, manufacturing GDP and Enterprise Censuses. According to Fisker and Schou 2018, such growth is important for a country whose population is increasingly expansive with immense untapped manufacturing potential.

Its contribution to GDP remains modest but growing. Data from the National Statistics Institute indicates that, at the end of 2019, the manufacturing industry accounted for around 10% of Mozambique’s GDP. Growth, though modest, shows a positive trend that can be accelerated with appropriate investments and policies.

1. Infrastructure Development

• Roads and Transportation: This involves a reduction in transaction costs due to improved roads and transportation networks, leading to increased economic activities. The extra initiative by the government in developing the national road network, especially in the rehabilitation of major highways, is supposed to increase connectivity and aid the movement of goods.
• Infrastructure—Port Facilities: Overhauling and expanding these port facilities can reduce bottlenecks in export and import procedures, thereby enhancing Mozambique’s competitive edge in the global economy.
• Communication and Facilities: The investment in communication networks and office facilities improves operational efficiency and connectivity, thereby facilitating business operations and market access more smoothly.

2. Energy Sector

• Natural Gas and Coal: There are significant investment opportunities in the Mozambican energy sector, particularly in natural gas. This sector, if well managed and equipped with all necessary facilities, can offer high economic value. Primary energy production is expected to rise sixfold by 2030, driven by natural gas and coal. The Rovuma Basin LNG projects have been in development and have secured paramount interest and investment from the international market.
• Renewable Energy: The government should also develop investments in renewable energy sources, including hydroelectric, wind, and solar power. This diversification will ensure long-term sustainability of the energy mix and reduce dependence on fossil fuels.
• Energy Efficiency: Enhancing it in the manufacturing sector makes production more cost-effective and reduces environmental impact, thereby making operations more sustainable and competitive.

3. Technological and Skill Development

• Technological Improvements: Investment in technological capacities is a must. Its history suggests a progressive trend toward technological obsolescence, and the need for current production processes and product innovation cannot be ruled out. Advanced manufacturing technologies, such as automation and digitalization, can substantially improve productivity and competitiveness.
• Educational Outcomes: Any improvement in academic outcomes and the workforce skills base is important for long-term growth in this sector. The literature on this topic indicates that a competitive, productive manufacturing sector relies on input from an educated, trained, and skilled workforce.
• Research and Development (R&D): Investment in R&D will trigger innovation and technological development. Collaborations between universities, research institutions, and industry can lead to the development of manufacturing technologies and processes.

4. Agricultural Processing

• Value Addition: Mozambique has a significant agricultural base, and investment in agro-processing can significantly increase the value of agricultural produce. It also hosts processing of cashews, cotton, sugar, and other crops, which can increase export earnings and generate employment.
• Supply Chain Development: Robust supply chains for agro-commodities have to be developed. Better storage facilities and transport, coupled with easier access to markets, in this context, will greatly reduce post-harvest losses and increase efficiency in the agro-processing industry.

1. Economic and Policy Environment

• High Indebtedness and Low State Revenue: The economic environment in Mozambique, marked by high debt and low state revenue, is very challenging. Substantial reforms in the business environment are necessary to make the country more attractive to investment.
• Poverty and Inequality: Despite rapid economic growth, poverty and inequality remain high, requiring transformative policies to promote inclusiveness. This is called for in respect of socio-economic gaps, with appropriate policies and programs remaining the key to sustainable development.

2. Political and Social Stability

• Policy Management: The political and social environment affects the stability of investments. Recent studies underscore the need for careful policy management, with sufficient attention paid to securing sustainable economic growth and avoiding the pitfalls of resource dependency. A transparent, accountable system of governance promotes investor certainty and facilitates a business-friendly environment.
• Governance Issues: Effective management of natural resource revenues is central to long-term sustainability. There is a need to address governance issues, especially in the management of natural resources, to build investor confidence. Robust regulatory frameworks and anti-corruption measures must be implemented.
• Security Concerns: Insurgent activities have rocked the northern parts of Mozambique, therefore raising security concerns. Investments should be protected through political and social stability in these regions.

3. Corporate Social Responsibility (CSR)

• Systematic CSR Approaches: The proper integration of CSR is a real challenge towards sustainable development. These big companies often have a structured CSR program, but more systematic approaches, including small and medium enterprises, need to be implemented. By encouraging businesses towards environmentally and socially responsible behavior, the overall well-being of communities and the environment would be improved.
• Community Engagement: Engage local communities in decision-making processes and ensure community benefits from these industrial projects. Companies can work to develop healthy relationships with communities to improve their social license to operate, with a view to contributing to documentation and development at the local level.

4. Access to Finance

• Financing Challenges: Access to finance remains a major challenge for most enterprises in Mozambique. High interest rates, coupled with limited credit availability and stringent collateral requirements for loans to SMEs, may hamstring their growth potential. There is an urgent need to develop financial instruments and support mechanisms designed exclusively for SMEs to foster entrepreneurial and industrial development in this country.

There is a potentially bright future for the manufacturing sector in Mozambique if key investments are made strategically in infrastructure, energy, and technology. Gradual scaling up of public investment alongside structural reform can ensure sustainable growth.

The expected boom in the exploration of natural resources will boost the sector substantially. Projects like mega-projects in natural gas and mining will generate great spillover effects, because of an amplified rise in demand for manufactured goods and services connected with the manufacturing sector.

The youthful population presents another opportunity for Mozambique: structuring a skilled workforce through education and vocational training to drive industrial growth. Other accompanying programs dedicated to entrepreneurship and innovation for youth will also increase the dynamism and resilience of the manufacturing sector.

While offering significant potential, investment in Mozambique’s manufacturing industry requires careful consideration of existing challenges and strategic planning. Targeted investments in infrastructure, energy, and technology, coupled with robust policy reforms, can ensure the sector witnesses sustainable growth, significantly contributing to economic development in the country.

Way back, Mozambique was portrayed in the press as standing on the brink of a manufacturing renaissance. By tapping into its natural resource base, investing in key infrastructure, and driving technological innovation, Mozambique could transform this manufacturing segment into an engine of economic growth. Now is the time for investors to join Mozambique on its journey towards industrialization and economic prosperity.