The company’s office in Maputo has six partners and roughly 200 employees.
Ernst and Young is a world-renowned firm with global operations. Can you give a brief introduction to its operations in Mozambique?
Ismael Faquir (IF): Ernst and Young started operations in Mozambique in 1991, offering all our worldwide services to all the sectors in the country. The office, situated in Maputo, has six partners and about 200 employees. The company is the market leader for professional services in Mozambique, with clients from a broad spectrum of different industries.
What services and support does EY offer to the mining industry?
IF: EY offers basic auditing services and assistance in helping our clients comply with the local tax code. We also offer advisory services, which include producing business plans, leading feasibility studies and providing general advisory on how to operate in Mozambique. As a global firm, the company has the advantage of having dedicated teams around the world that we can utilize with regards to assisting our clients.
The services that we provide are not limited to the mining industry, as we service most sectors in Mozambique. Oil and gas companies are often multinational entities but they tend to use the same auditor across all their operations. If Ernst and Young is globally chosen as the auditors for a specific oil and gas company, we will also work with the local entity. For oil and gas companies, where we are not acting as auditors, we do provide tax and advisory services.
Can you compare Mozambique’s tax structure to tax structures of other Southern African countries, particular as it pertains to the incentive structure in the mining industry?
IF: Discussions with the government pertain mostly to the competitiveness of the tax environment compared to neighborhood countries. Mozambique’s tax environment does not create an advantage or disadvantage, as it is very similar to tax regimes of other Southern African countries. The most important aspect is for the country to be efficient in refunding taxes so as to build a trusting relationship with investors. Aside from the laws themselves, investors also pay close attention to how these laws are implemented. The struggle is that Mozambique does not always efficiently comply with its own regulations, which makes Ernst and Young’s operations difficult.
Do you foresee any reforms to the tax regime as to help improve the uniform application of the laws in Mozambique?
IF: The biggest problem that the country has is the refunds of the value-added tax. The government still owes significant amounts to various companies, which puts pressure on their cash flow and compromises their ability to reinvest. In 2015, the government changed the rules to facilitate refund application. The laws were changed, but the taxpayers are still facing the same difficulty to attain the funds owed to them.
Compared to other countries, Mozambique’s legislation does not lag behind, but the government needs to be more proactive and more compliant to the laws. The private sector wants to see results rather than only initiatives to change. It is our responsibility to change the perspective of Africa, and the government must prove that Mozambique is a good investment destination.
What opportunities exist in the mining sector for exploration, service and production companies?
IF: There are significant opportunities in the mining sector but there is still a substantial amount to be done in order to create a sufficient enabling environment. Logistical issues associated with the quality of railways, ports, accommodation and security remain. The country’s ongoing skills deficit will require sustained investment in educating and training local people. As for the government’s lack of financial capacity, they should investigate private partnerships to develop infrastructure for the mining sector.
How have the recent changes in the mining law and regulation affected the environment and investment protection?
IF: Local content should be taken into careful consideration. If there is not a good relationship between investors and local communities, it can create friction. If, on the other hand, good legislation is well implemented, this can lead to a mutually beneficial relationship. Local communities do not initially have the capacity to make large investments or to participate at all levels in a project. It is important to strike a balance between allowing investors to successfully develop their projects and ensuring that the local people benefit in a meaningful way.
The changes in regulation may possibly affect the government’s ability to increase its revenue. The problem is that one needs revenue to create a positive social environment. If firstly the local people are not satisfied, the government’s strategy to increase revenue will probably fail.
In terms of investment protection, there has not been much concern relating to the new law. The current concerns revolve around commodity pricing. The expectations are that the government should support the mining industry during cycles of decreased commodity prices.
What are the key investment advantages of Mozambique?
IF: Mozambique is a very rich country in terms of natural resources. The location of the country and the presence of good ports are advantages, as it is easy to link Mozambique to different markets. Investors require certainty and stability, and it is the responsibility of the government to change the investment perspective and prove that Mozambique is a good investment destination.
How will Ernst and Young evolve within the mining sector within the next year?
IF: The mining sector is one of the focus areas for Ernst and Young and we are investing significantly into this sector. The company’s presence in the mining sector is more than a strategy for growth, but a strategy to sustain our business. We are heavily investing in training to ensure that we are able to offer the right resources to the mining industry.
Do you have a final message to our international readership?
IF: Investing in Mozambique can be very beneficial as the country has a very friendly environment. The new government consists of people that really understand the dynamics and needs of the private sector. It is important for investors to get the right advice in terms of operating in Mozambique. If people understand your vision and mission, you will get the support that you seek.
This interview was part of research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Molly Concannon at email@example.com.