Top Ten Sectors to Consider for Investment in Mozambique

Globally, smart businesses and investors are those who can easily turn challenges into opportunities. Given that challenges are mainly the lack of solutions to problems, any individual or group of people who can prover solutions for such problems can be assured of payment in return for their efforts. This is what Mozambique, the tenth biggest economy in sub-Saharan African and one of East Africa’s shining economic stars, requires of investors currently. With challenges in almost every sector of the economy, virtually not all battling can be assured of handsome rewards if they invested prudently in any segments of the country.

In this report, Marcopolis presents the top ten sectors (in no particular order) that promise higher returns and should, therefore, be watched closely by investors interested in taking a part of the growing Mozambique pie.

1 – Agribusiness

Mozambique, a country of some 25 million people, is generally considered an agricultural region. Of its 801,537 square kilometer landmass, the World Bank estimates that about 63,5% of it is suitable for agriculture, making it one of the country’s with a vast piece of tillable land. The agricultural sector in the country currently employs about 75% of its workforce and contributes to 25% of the total economic output, measured by gross domestic product (GDP).

However, despite the huge importance of agriculture to the country, the sector is still the least explored; with food shortages still prevalent. Annually, billions of foreign exchanges are used to import food crops to supplement the local produce, which comes mainly from the peasant droppers in the hinterlands. For instance, the country has the third highest rice consumption rate in SADC. However, majority of that rice is imported from western and neighboring countries. Thus, demand for rice, which grows at 6 to 7% per year, indicates an expanding gap between demand and production. Experts estimate that poultry consumption, particularly chicken, could double in the next five to seven years. Studies routinely show a local preference for the locally produced chicken, but production costs, largely due to high feed costs, keep prices 15% above that of the imported Brazilian chicken in Maputo, and up to 25% higher outside the major cities. This means an investment opportunity for poultry farmers and feed producers alike.

In the area of farming, a gap also exists in the inputs. Majority of the country’s farmers still rely on simple tools such as the traditional hoe and cutlass. This needs to change if the country wants to bridge its food deficit gap. Thus, investors could look to commercial agriculture, agriculture inputs assembling, repairs and servicing, distribution and even importation. As the Governor of the Maputo Province said in an interview with Marcopolis, the national capital is in dire need of agricultural machines to help spur growth in the sector: “we need several agricultural machines because most of the producers still use a short-handled hoe and that does not take them very far. They need equipment that helps them save the energy and make sure the citizen has enough food for themselves and to sell during the year. If we sell, we can eliminate the dependence on the importation of food from other parts of the world.” Thus, investors could capitalise on this vacuum to set up input supplier or manufacturing plants to feed the local market.

Again, investors could also look to irrigation, an area that the current government is investing a lot of attention in. With a the recurrent droughts in the northern part of the country, an investor’s ability and willingness to construct dams at vantage points would mean that smallholder farmers could do all year round farming and that will go a long way to supplement existing farms.

Another area to watch in the agricultural sector is agro processing. Agric-based investors could also set up to process some of the country’s numerous fruits for the local and regional market.

2 – Real Estate

All over the world, real estate is big business. The situation is not different in Mozambique, where the housing deficit is one of the albatross around the neck of the new government. Although not many of those in the housing deficit gap are capable of owning sizeable houses, the few that can, do not have access to properly constructed houses, a challenge that presents a big business opportunity to investors. Real estate developers could easily capitalise on the deficit to supply low cost but well-constructed properties for sale or rent. Shopping malls, high rise buildings for office and residential rentals and hotels are also hot cakes.

Closely related to that is the inputs in the sector. With the estate sector booming, building input suppliers can be assured of good market, especially those that set up strategically in emerging peri-urban communities – another strategy investors should not loose sight of when setting up their operations. This is where the issue of affordable housing comes. With big estate developers from neighboring South Africa and other countries coming in, not all Mozambicans can afford the prices of their products, something that calls for segmentation of the market to suit the relatively low income earning locals. This presents an opportunity for local developers struggling to match up to their foreign counterparts. A lot of them must team up, acquire land and build low cost residential properties for rent or sale to locals and that will serve two purposes – bridge the yawning housing deficit and increase their earnings. It will also help create employment for the teaming youth.

3 – Energy

Energy is big business in Mozambique and investors interested in the sector could take a step now. Following the liberalization of the electricity sub sector in July 1997, private investments in that area have picked up, albeit slowly. The country still has enormous resources for the production of energy, large hydro resources, coal, natural gas, biomass and high levels of solar radiations. These present some enormous opportunities for energy sector investors either in the production, distribution or transmission. Indications are that demand for electricity in the country would grow around 11% each year. With the new reforms, both the national and international players have equal opportunities and that should be good news to investors from both divide. The solar power and hydro electric power can create power for domestic use as the electrical power grid only reaches 14% of the population. The deficit in the supply also means that alternative power sources such as solar and wind could be explored. Small-sized power plants will also be in good demand by businesses and individuals suffering power blackouts. All these are sectors investors could look at.

4 – Mining and Quarry

Mozambique has a significant amount of mineral deposits in coal, natural gas, gold, oil, diamonds and titanium. Following an increase in the geological studies, there has been a vast increase in the investment by the leading international and regional mining companies. That notwithstanding, the sector still contributes minimally to GDP, mainly as a result of series of challenges limiting its progress. The constraints in the sector include poor infrastructure, one challenge that presents an investment opportunity for infrastructure-focused investors. Mozambique’s mining sector has been growing due to the presence of international mining companies. The other known deposits are of graphite, marble, bentonite, coal, gold bauxite, granite, fluorite, diatomite, emeralds, tourmaline, apatite and limestone. The regulatory responsibility for mining rests with the Ministry of Mineral Resources and Energy. Thus, companies could set up to mine or to provide mining support services to the mining giants. Increased investor interest in the mining sector also means that patronage of mine fuel, construction of mini roads to mine sites and supply of mining equipment will increase. These areas should be watched by entrepreneurs.

5 – Logistics and Warehousing

Mozambique’s energy boom is complemented by a rapid infrastructure build. Yet transport capacity and logistics remain the biggest challenges in the country. Brazilian mining conglomerate, Vale – unable to transport all the coal it mines – has built shipping facilities with British-Australian group, Rio Tinto, to meet the growing needs for their piece of the sector. But once-off projects cannot be the long-term answer. Small-scale logistics operators make a name moving everything from aluminum to vegetables but lack capital to scale. Companies enter with high hopes. But building up a company is a tiresome process of finding capital, not clients or customers. Bigger players, including transport company Bollore Africa Logistics, entered the sector with high optimism but largely on the higher end of the market. Part of the margins is the costs consumers must pay for storage. Low transport capacity boosts warehousing demand as products can sit idle for days. The challenges of electricity shortages and fuel prices add an extra 10 to 20% per kilogram depending on the product. The growth of nearby landlocked economies, including Malawi and Zimbabwe, will further drive up demand and prices in the sector. Local executives in Zimbabwe and Zambia expect logistics costs to weigh upon their business, a reason for the growing investment interest in both countries themselves. The growing interest of Asian countries also implies more pressure will be placed on the sector to grow beyond its current capacity.

6 – Manufacturing

At the time of independence, Mozambique’s industrial base was well developed by Sub-Saharan standards due to the boom in investments in this sector in the period of 1960 -70. The sector has benefited immensely by the macro economic situation and the increase in the demand resulting to massive foreign investment and high economic growth. The food processing sector is one of the largest segments of this industry. Light manufacturers, such as beverages, textiles and wood processing are also important.

7 – Hotels and Hospitality Sector

Reports show that finding a place to sleep in Mozambique for less than $250 per night generally entails staying in a local bed & breakfast (still around $120 per night), or at a guesthouse in someone’s backyard. High prices have however not lowered occupancy rates. Instead, high demand, largely due to a booming energy industry, begs for more hotel development. This presents a good investment opportunity for investors interested in the hospitality sector. Investors that push some good money into building high class but moderately priced hotels could be smiling with handsome rewards if they get the right management in place. This could be augmented by the increasing tourist arrivals to the country, another area that should be of interest to investors.

8 – Tourism

Mozambique is blessed with numerous beaches that are of interest to many tourist who throng the country for site seeing and conferences. With these breathtaking beaches, ideal tropical climate, world class scuba diving and diversified wildlife, Mozambique has a need for hotels, lodges, and resorts to attract a growing tourism industry. The average amount of investment approved for the tourism sector in Mozambique each year was USD 600 million between 2005 and 2008, reaching a peak of USD 977 million in 2007. Hotel attendance has risen by 15% annually since 2005. It is one of Mozambique’s major foreign exchange earner.

9 – Heavy Industry and Construction

Inadequate infrastructure implies continued construction for the near term. New buildings and transport facilities, including roads, are set to boost demand. However mining sites stall as they wait for delivery of structural steel products, says a local investment executive. Heavy industry and construction is an easy one in Mozambique because the demand is simply a by-product of the booming energy sector and growing consumer base. Some local optimists believe growth is set to be an easy upward trend for Mozambique. But realistically, without more foreign investment, it could also stall.

10 – Telecommunications

Mozambique was one of the first countries in the region to reform its telecom sector, which immediately followed the long civil war that ended in 1992. As a result, the sector has seen the introduction of measures favourable to competition, and which promote access to infrastructure. The mobile segment in particular has shown strong growth since the introduction of competition in 2003 between Vodacom Mozambique and mCel, the incumbent mobile subsidiary of the national telco TdM. Given that mobile market penetration remains far below the African average, and that the country has relatively low fixed-line penetration, there is considerable room for further growth in coming years. This has been stimulated by the launch of commercial services from the third operator Movitel, which is backed by Vietnam’s Viettel. These developments, although challenges to consumers, present some investment opportunities for investors.

The government in 2013 drafted a revision of the 2004 Telecommunications Act, aimed at developing greater competition, and facilitating access to networks and infrastructure in a bid to reduce investment costs. The poor fixed-line infrastructure has largely held back the market for internet services. This calls for increased investment to help bridge the jinx and slower data costs. The high cost of international bandwidth had long hampered internet use given the relatively high cost of access, though the landing of two international submarine fibre optic cables (Seacom and EASSy) has reduced the cost of bandwidth and so led to drastic reductions in broadband retail prices. Cross-platform competition, with active ADSL, cable broadband, WiMAX, 3G mobile and limited Fibre-to-the-Premise (FttP) services, is also helping the market to develop. Further improvements can be expected from the ongoing rollout of a national fibre backbone networks by TdM and the mobile operators.

As of December last year, mobile penetration was estimated at 62%, fixed lines at 0,3% and internet usage hovering around 8,2%, according to market recast cb firms. The lower internet and fixed line penetration means that investors who invest in those areas could be guaranteed good returns.