Recently, the Council of Ministers, through Decree No. 49/2017 of 11 September and in the exercise of its powers, revoked the Foreign Exchange Law Regulations approved by Decree No. 83/2010, of 31 December and conferred powers to the Bank of Mozambique, as an exchange authority, to regulate the Foreign Exchange Law, approved by Law No.11/2009, of 11 March.

Accordingly, the Bank of Mozambique (BM) published Notice No. 20/GBM/2017, dated 27 December, on Exchange Rate Rules and Procedures, in order to implement the Foreign Exchange Law. The new Notice has made some exchange procedures and rules more flexible, establishing a regime that is believed to be more favorable to foreign direct investment and has given a preponderant role to the commercial banks, which are now in charge of registering some capital transactions, as well as channeling applications for approval to the BM. That is, the applications are submitted to the commercial banks, which in turn channel them to the BM.

The present article aims to address some comparative aspects between the former Exchange Law Regulations (FELR) and the Notice on Exchange Rules and Procedures (Notice) recently published by the Bank of Mozambique.

From the analysis made to the Notice, the following changes are highlighted:

Withholding of 100 percent in foreign currency

As it is known, export revenues are subject to repatriation, which must be done within 90 days from the date of shipment in the case of export of goods and the receipt of the price, or fees in the case of exports of services. According to the FELR, these revenues were subject to conversion of at least 50 percent into national currency, to be made at the exchange rate of the day applied by the bank that acted as intermediary in the transaction.

The Notice eliminated the obligation to convert the revenue exports, allowing the foreign currency to be held at 100 percent in a specific revenue account in foreign currency, with the conversion to local currency being made to the extent of need of the holders, as established by Article 8 (3).

However, the specific revenue account is intended for the settlement of any foreign operation and transfers are only allowed for accounts of the same nature. In so far as payments are required to residents, funds are converted into national currency (Notice, Article 8 (4) (5)).

Authorization for the completion of Foreign Direct Investment in Mozambique

The FELR established the obligation to obtain prior authorization from the BM in order to carry out Foreign Direct Investment (FDI). However, according to article 72 of the Notice, an FDI does not require prior authorization, it is already authorized and only requires registration with the intermediary bank within 90 days from the date of entry of the investment. However, when the investment is made through the import of equipment, machinery and other tangible assets or when it is carried out through the right to use patented technologies and trademarks, its registration must be made at the BM through commercial banks.

Failure to register the FDI after three years from the effective date of entry of the investment amount determines the non-recognition of the right to export profits or dividends, as well as the re-export of the invested capital.

Authorization to carry out FDIs abroad by residents

The Notice brings a great innovation, which is the authorization for residents to invest abroad. Thus, FDIs made abroad, real estate investment made abroad, operations related to certificates of participation in investment organizations abroad and the carrying out of portfolio investment transactions relating to securities and other money market and capital market instruments, up to an annual amount equivalent to US$250,000, are authorized pursuant to Article 70 of the Notice, conditioned only to the intermediation of the investment by a commercial bank authorized to operate in the country.

Authorization for the contracting of shareholder loans and financial credits

Another significant change that addresses the concerns of the private sector and investors is the authorization for the contracting of shareholder loans and credit received from abroad. Pursuant to article 75 (3), the receipt of a loan or credit of a nonresident company related to the beneficiary resident company up to the amount of US$5 million has already been authorized, and is only subject to registration with the intermediary commercial bank and must fulfill the following requirements:

• Be obtained at an interest rate of 0 percent, with a maturity of three years or more and free of fees and other charges, or
• Be obtained at an interest rate higher than 0 percent, but lower than the reference rate (base lending rate) of the currency of credit denomination, with a maturity of more than three years, free of fees and other charges

And in the case of unrelated third-party loans, in order for it to be considered authorized under the terms referred to above, it is necessary that:

• The interest rate does not exceed the reference rate of the currency of credit denomination, plus four basis points
• The sum of the reference rate and the margin does not exceed the interest rate of credit practiced in the national banking system, and
• Have a maturity of three years or more

Credits above US$5 million or that do not meet the above requirements are subject to prior authorization from the Bank of Mozambique and applications requesting the authorization must be submitted to commercial banks, upon completion of a specific form.

Special Exchange Regimes for the Oil and Gas Sector

The Notice eliminated the possibility of negotiating a special foreign exchange regime under concession agreements entered into with the State and introduced a special foreign exchange regime for the Oil and Gas sector, which aims to allow greater flexibility to the foreign exchange operations and financing of the same, granting to concessionaires, the right to:

• Open and maintain bank accounts in national and foreign currency at any bank operating in the country
• Open and maintain foreign bank accounts to receive export revenues, disbursement of credits and investment and after payment of the services provided for in the Notice, the concessionaires have the obligation to repatriate the surplus of export revenues within 90 days to its commercial bank in Mozambique, and
• Transfer abroad the profits and dividends after the fulfillment of tax obligations and other charges with the State

From the comparative analysis between the FELR and the Notice, we noted that there has been a remarkable evolution and a greater openness in foreign exchange norms and procedures and that the debureaucratization of the procedures will undoubtedly accelerate the applications for capital operations and investments in the country. We are aware of the initial difficulties that will arise, from the outset on issues of interpretation and application of the Notice, to the preparation of commercial banks for the new role assigned to them. However, we believe that changes to foreign exchange legislation will contribute to a greater flow of capital to the country, creating a more attractive and secure business environment for investments in Mozambique.

The article was also published in the SAL & Caldeira Advogados LDA Newsletter No. 36. Access the article. It is reproduced with permission of SAL & Caldeira Advogados LDA.

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