Making money in Mozambique can be achieved in 2017, but you’ll need to pay attention to these important factors that could affect your start-up’s success.
Mozambique is an ideal location for South African entrepreneurs looking to start a foreign business in 2017 thanks to its close proximity to home, but a recent report on the country’s looming debt crisis points toward turbulent times ahead.
Regardless of whether you’re punting products or offering services, cash is a concern for many businesses in Mozambique, and if you aren’t 100% sure that you have enough capital in hand to make your business a success when starting up, borrowing money at a later stage might prove difficult.
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In quarter two of 2016, Mozambique accepted and admitted that it had hidden more than USD1.4 billion in debt from the International Monetary Fund (IMF) and other investors. The IMF, the World Bank, and several UK investment firms has since suspended financial aid in the form of loans or investment to the country.
Here are three reasons why you need to tread carefully when it comes to striking deals and making decisions for your Mozambican endeavour:
1. Investors are wary
Since news broke that Mozambique had covered up its debt of more than a billion US dollars, international investors have held back in terms of cash inflows to the country. On top of this, Standard & Poor’s (S&P) 500 Global Ratings reduced Mozambique's credit valuation to CCC from B- citing an amplified chance of it defaulting on debt. S&P now estimates that Mozambique's net general debt is at 90% of gross domestic product (GDP).
For you, this means cash-in-hand is key to success as investors aren’t going to be as forthcoming with funding should you realise that cashflow isn’t as expected. Ideally, you’ll need to ensure your transactional accounts can accommodate for cash shortfalls in the form of an overdraft facility.
Standard Bank’s in-country specialists can assist you in setting up accounts or applying for services from abroad, or alternatively it might make better business sense to meet with local representatives first. You can contact Mozambique banking specialists here.
2. Metical is losing value
Currency fluctuations are part and parcel of doing business across borders, so you’ll need a firm understanding of how the Mozambican metical is performing against the US dollar and the rand. In 2016, the metical lost more than 40% of its value against the dollar. Combine this with an inflation figure close to 25% and you’re immediately dealing with a market that’s going to be challenging to start a business within.
There’s also exchange controls to factor into your business model, particularly if you’re planning on sending some of your profits back home. While Mozambique’s government might be under scrutiny for its debt commitments, the country’s bureaucracy remains high and strict exchange controls are in place for moving money in and out of the country.
With the right transactional account, though, you can still move money legally. Just remember to keep a sharp eye on metical fluctuations to ensure you’re moving money in and out of the country when it suits your pocket best.
Related: Business reforms that have improved doing business in Mozambique
3. Disappearing disposable incomes
Life’s getting tougher for Mozambicans due to their government’s debt and currency’s ups-and-downs. Reports suggest that governance woes are taking its toll on the population as fuel and electricity prices continue to rise unabated. Reuters says that Mozambicans face bread price hikes too, and that bakers might have to shrink the size of bread loaves to accommodate for the rising price of wheat.
This means that your product or service needs to come in at a genuinely affordable price for Mozambicans, without compromising on quality. To ensure that you’re not overshooting in terms of your revenue expectations, a market assessment of how your closest competitors are performing can enable you to identify a point of entry. Or it may highlight that your product or service is actually too expensive for the market.
It’s a lengthy process to undertake, but you’re better off knowing where and how you stand, instead of moving in and setting up shop only to find that the store next door to you is cheaper.
Starting a business is tough, and it’s even tougher when you’re starting it in a neighbouring country that’s taking financial strain. Mozambique’s enjoyed more than two decades of peace, and growth, and despite its challenges now, the long-view remains bright.
Mozambique’s government has acknowledged that it’s in debt and that it needs to fight its way out. It remains a viable market for you to break into, but does require more discipline and acumen considering the turbulence at present.
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- Mozambique’s economic outlook remains bleak since it was discovered that the country is carrying more than a billion US dollars (some say closer to USD2 billion) in bad debt.
- The metical has lost more than 40% of its value against the dollar, making investors wary of funnelling money into the country.
- Standard Bank offers an in-country presence in Mozambique and can outfit your business with the exact financial tools you need to succeed, despite the challenges facing the country.