At the first day of Mozambique’s ongoing Annual Private Sector Conference (CASP), Deputy Minister of Economy and Finance, Carla Louveira, delivered an update on the nation’s economic condition and the government’s response through the Economic Acceleration Measures (PAE).
Her address outlined the challenges and significant steps being taken to revitalize the national economy amidst global and local adversities.
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Mozambique’s economy has been significantly challenged by factors such as the suspension of external budget support, security issues in Cabo Delgado, and the impacts of COVID-19 and natural disasters. These events have slowed economic growth dramatically, from an average GDP growth of 7.3% to just 2.8% annually over the last seven years. The conflict in Ukraine has further intensified these challenges, increasing inflationary pressures and the cost of living in Mozambique.
As one of its response mechanisms, the government launched the PAE package in August 2022 —a set of reform measures aimed at reigniting economic growth by placing the private sector at the core of economic transformation. The measures include incentives for key sectors, improvements to the business environment, and increased governmental transparency and efficiency.
Louveira highlighted the coordination of reforms through an office established specifically for this purpose, with twenty foundational measures reflecting the historical input and demands of the national private sector. Since their implementation, these measures have started to show promising signs of recovery, with projections of growth at 6% for 2023-2025.
The Deputy Minister went through the progress of these measures in a keynote presentation, particularly the fiscal package which consists of five reforms. Notable changes included a reduction in VAT by one percent, VAT exemptions for agricultural and electrification production factors, and a significant reduction in corporate income tax for agriculture, aquaculture, and urban transport from 32% to 10%.
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Additional efforts included combating tax evasion in the mineral sector. The government hired a firm to manage the quantification and specification of natural resource exports, establishing reference price bulletins that have helped secure a 30% increase in mining sector tax revenue in the last quarter of 2023.
The Deputy Minister also discussed initiatives aimed at boosting the housing sector and enhancing the national construction materials industry. These include securing financing for material specification and creating a database for contractor registration while developing infrastructure components.
She highlighted the allocation of 10% of natural resource fiscal revenues to the provinces where extraction occurs, significantly increasing the budgeted amounts for these provinces to over one billion meticais in 2024.
The establishment of a Mutual Guarantee Fund was a major advancement, expected to issue its first guarantee by mid-August 2024. Logistics improvements were also significant, with efforts focused on simplifying procedures and digitizing services, reducing waiting times at entry points, and setting a timeline for the adoption of a single border by 2027.
Furthermore, the revision of the legal framework for public procurement has been completed, with electronic contracting now implemented to enhance local purchases and prioritize national production. The government is also focused on developing local industries to replace imports and meet state demands in sectors such as health and education.
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The Deputy Minister concluded by pointing the successful revisions of the Labour Law and the complete regulation of the Private Investment Law. The ongoing implementation of the e-Bau portal, facilitating the digital establishment of companies, and the creation of the Sovereign Fund to protect against economic volatilities are steps towards improving Mozambique’s regulatory environment and economic infrastructure.
As Mozambique continues to navigate these challenging times, the government remains committed to fostering a more inclusive economic growth model that benefits all sectors of society said Louveira while calling on the private sector and international partners to deepen their engagement with these reforms, emphasizing that their support is crucial as the country strives to transform challenges into opportunities and propel Mozambique towards a prosperous and sustainable economic future.
