Investment Incentives

Investment Incentives

Investment Incentives in Mozambique

Are They Necessary?

Numerous surveys and studies have been done in Mozambique to identify barriers to private investment-the negative side of the business environment. Yet hardly any information is available on key factors that actually motivate investors to commit resources to business opportunities in Mozambique-the positive side of the business environment. The purpose of the present study is to examine this neglected side of the equation by reporting on survey results from a stratified random sample of companies that obtained investment approvals in 2005, 2006 and 2007 to qualify for fiscal benefits (benefĂ­cios fiscais) and guarantees on the remittance of funds abroad.

The survey explored the a variety of motives for investment, with a primary focus on the effect of fiscal benefits on actual investment decisions. This is a perpetual source of policy debate, and yet there is a keen lack of empirical evidence on the effectiveness of incentives or the associated benefits and costs under various conditions. Much of the available evidence is circumstantial, anecdotal, or based on problematic econometric techniques.

The best form of evidence would come from econometric studies using microeconomic data based on natural experiments or well defined control groups. Yet there is also merit in exploring the efficacy of fiscal incentives by seeking evidence directly from investors. This approach is in the spirit of survey work pioneered by the World Bank to obtain detailed information on the characteristics of private sector firms, strengths and weaknesses in the investment climate, the quality of the institutional environment for doing business, compliance costs for paying taxes, and even the prevalence and cost of corruption. A previous study in Mozambique found that most investors do respond candidly to questions about the role of fiscal incentives in ex post surveys-even though they might all have argued strongly in favor of incentives ex ante (Macamo, 2000). Yet this approach has rarely been applied to studying the effectiveness of fiscal incentives. In this light, the present paper can be considered as an experiment in testing the value of survey data to obtain microeconomic data on how fiscal incentives affect investment decisions.

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Business Factor

Average Score
(1 = not important; 5 = important)

Domestic Market Potential


Political Stability


Adequacy of power infrastructure


Proximity to Port


Duty-free imports of capital goods


South Africa market potential


Adequacy of water infrastructure


Adequacy of road infrastructure


Company income tax incentives


Favorable exchange rate


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