Summary
Setting up a cashew nut processing factory in Nacala Porto involves several essential stages, from receiving and storing the nuts to packaging and shipping the processed cashews. The factory’s structure includes sections for pre-processing, thermal treatment, shelling, pellicle separation, grading, and quality control, in addition to administrative and maintenance areas. Instruments addressing land possession, foreign labor hiring, and capital repatriation are necessary to facilitate the operation.
The Nacala Special Economic Zone (NSEZ), created to promote strategic investments, offers a geostrategic location with the Port of Nacala, facilitating the inflow and outflow of goods. Land possession through the Right of Use and Benefit of Land (DUAT) is crucial, and foreign companies need approved projects and compliance with environmental legislation. The project finance approach mitigates land conflict risks by adopting best practices and adhering to the existing legal framework.
Mozambique offers various fiscal and non-fiscal incentives to promote investments, including tax exemptions on the import of construction materials, equipment, and other goods, as well as VAT exemptions on domestic purchases and progressive reductions of corporate income tax (IRPC). These incentives reduce operational costs and improve the factory’s competitiveness. The facilitated labor and migration regime allow the hiring of qualified foreign labor. The free repatriation of profits and international trade agreements expand the market for the export of processed cashew nuts, ensuring a promising and sustainable market for local production.
Setting up a cashew nut processing factory in Nacala Porto represents a significant opportunity for the region’s economic development, leveraging the strategic location of the Nacala Special Economic Zone (NSEZ). This project aims to transform raw cashew nuts into high-quality edible kernels, meeting the growing global demand. To make the factory viable, it is essential to understand and utilize the fiscal and non-fiscal incentives offered by the Mozambican government, as well as address critical issues such as land possession, foreign labor hiring, and capital repatriation. This document explores the necessary factory structure, the benefits provided by the NSEZ, and the available incentives, highlighting how they can be applied to ensure the success of the venture.
Before addressing issues related to land access, tax benefits, foreign labor hiring, and capital repatriation, it is necessary to outline the components of a cashew nut processing factory to be established in Nacala Porto. According to Ogunwolu and Oshinowo in their Cashew Processing manual (2001), a cashew nut processing factory is structured with several sections and essential equipment to transform raw cashew nuts into edible kernels.
Initially, the nuts are received and stored in silos or warehouses. They then pass through a pre-processing section where they are sorted by size and quality and cleaned to remove impurities. Thermal treatment, including roasting and drying, facilitates the removal of the hard shell. Shelling is performed by automatic machines or manually, followed by the separation of the kernel from the shell.
Subsequently, the kernels undergo peeling and pellicle separation using specific machines. The kernels are then graded by size, color, and quality. Inspection and quality control involve manual verification and laboratory tests. Finally, the kernels are properly packaged and labeled, prepared for shipping, and stored in finished goods warehouses.
The factory’s supporting infrastructure includes administrative areas, maintenance workshops, and welfare facilities for employees, ensuring an efficient and safe environment for cashew nut processing.
The above approach shows that, for the establishment of a cashew nut processing factory in Nacala Porto, there must be mechanisms in place to facilitate investment mobility, land possession, foreign labor hiring, capital repatriation, among other aspects.
The Nacala Special Economic Zone (NSEZ) was established by Decree No. 76/2007, dated December 18. This zone is located in Nampula Province, covering the districts of Nacala and Nacala-à-Velha, with an area of 1,539 km².
Due to its importance and size, the Nacala Special Economic Zone, being the first of its kind created in the country, is managed by the public sector. The responsibility for administration falls on APIEX, IP, which carries out various management actions.
Thanks to its geostrategic location and the presence of the Port of Nacala, the NSEZ is seen as an excellent entry and exit point for the African continent and beyond. This zone has great potential to attract significant investments in various sectors, especially in logistics, industry, agro-processing, and the chemical industry.
For structuring projects like the case presented, land possession for the factory installation is a crucial element. According to the Investment Guide (GLM) 2012/2013, land, the most important resource the country has, is state property and an exclusive right. Besides all the rights of an owner, the Constitution of the Republic prohibits the alienation and encumbrance of land, establishing the need to determine the conditions for the use and benefit of land by individuals and legal entities, both national and foreign.
The land policy reflects and supports the primary objectives of the Government’s economic and social policies regarding the need to eradicate absolute poverty and promote self-sustaining economic and human development. Thus, the use and exploitation of land by various stakeholders are realized through the Land Use and Benefit Right (DUAT). The process of acquiring the Land Use and Benefit Right (DUAT) for the construction of a cashew nut processing factory, established as a partnership of foreign legal entities, must adhere to specific legal requirements.
Firstly, the acquisition of DUAT must be obtained through a specific Authorization. Furthermore, considering the foreign capital involved, entities can only hold DUAT if they have an investment project duly approved in accordance with current investment legislation. Additionally, these entities must be incorporated or duly registered in Mozambique and obtain formal authorization under applicable laws, which may be provisional for a period of 2 years for foreigners and 5 years for nationals.
In any case, the land acquisition process must comply with Law No. 19/97 of October 1, and the Land Law Regulation under Decree No. 66/98 of December 8. Furthermore, under current legislation, the definitive authorization of the Land Use and Benefit Right (DUAT) is granted upon fulfillment of the exploitation plan or project. This authorization is valid for 50 years, renewable for an equal period, with a new DUAT concession request required upon expiration of the renewal period.
Applicants and holders of DUAT pay annual fees and specific fees for provisional or definitive authorization, with the first payment made at the beginning of the process and the second within three months after issuance notification. Annual fees are due upon notification of provisional authorization, with the possibility of exemption for up to three years in case of obstacles beyond the holder’s control. Furthermore, the fee is relatively low in priority development zones such as the Special Economic Zone (SEZ) for the project in question.
Despite incentives for land ownership, adherence to environmental impact assessment regulations is essential, as stipulated in the Environmental Impact Assessment Regulation (Decree No. 54/2015), which categorizes assessments into A+, A, B, and C categories as per Table 1.
Table 1- Categories for EIA
| Category A+ | Subject to the preparation of the Environmental Pre-Feasibility Study and Scope Definition (EPDA) and subsequently to the preparation of the Environmental Impact Assessment (EIA). In this category, studies must be reviewed and supervised by independent experts with proven and relevant experience. |
| Category A | Subject to the preparation of the EPDA (Environmental Pre-Feasibility Study and Scope Definition) and subsequently to the preparation of the EIA (Environmental Impact Assessment). |
| Category B | Subject to the preparation of the Simplified Environmental Study (EAS). |
| Category C | Subject to the preparation of Good Environmental Management Practices Procedures. |
In addition, land acquisition for the construction of a cashew nut processing factory, as a capital project financed through project finance, typically follows a financing method divided between equity (to be contributed by shareholders) and debt (to be raised by creditors in the form of debt services). This project finance approach assumes, besides compliance with the country’s legal framework related to land acquisition and benefits of SEZs, the mitigation of land conflict risks through the adoption of best practices. An example is Performance Standard 5: Land Acquisition and Involuntary Resettlement of the IFC, dated January 1, 2012, which is part of a set of eight Performance Standards.
To encourage economic development and public interest activities, Mozambique offers fiscal and customs incentives to individuals and entities undertaking investments in accordance with the Investment Law and registered for tax purposes. These benefits, including tax exemptions and reductions, are regulated by the Fiscal Benefits Code (CBF), approved by Law No. 4/2009 and other legal provisions. For further details, see Table 2 below.
The Mozambican government has streamlined the processes for hiring qualified foreign labor as outlined in the Investment Guide (GLM) 2012/2013.
Table 2 below provides further details on hiring foreign labor for the cashew almond processing factory in accordance with the benefits outlined in the law.
The cashew almond processing factory in Nacala Porto benefits from several strategic incentives. These include unrestricted repatriation of profits, allowing investors to freely transfer their earnings and dividends to their home countries, thereby enhancing investment attractiveness. Additionally, streamlined access to international markets, facilitated by Mozambique’s trade agreements with various countries, promotes the export of processed cashew almonds, significantly broadening market reach. The global demand for high-quality cashew almonds, which is steadily increasing, ensures a promising and sustainable market for local production, ensuring profitability and continuous expansion opportunities for the factory.
For further details, Table 1 below summarizes the benefits and applications under the free currency regime, which also permits offshore operations including capital exports.
Table 2 summarizes aspects related to tax benefits, hiring of foreign labor, export of capital, and other relevant factors applicable to both fiscal and non-fiscal incentives for the cashew nut kernel processing project. This summary is based on current legislation and the Tax Benefits Code (TBC).
Table 2- Fiscal incentives, non-fiscal incentives, and other benefits according to the legislation.
| Type of Incentives | Benefits | Application for the cashew nut processing factory |
| Tax Incentives | Tax Exemption on Importation of Construction Materials | Description: The factory will be exempt from paying taxes on the importation of construction materials necessary for building the facilities.Practical Application: Significant reduction in initial construction costs, enabling the construction of modern and efficient facilities without the additional burden of taxes. This facilitates a quicker startup and lower capital costs. |
| Tax Exemption on Importation of Equipment and Accessories | Description: Essential processing equipment such as peeling, roasting, packaging machines, and other accessories will be exempt from import duties as per the customs tariff.Practical Application: Reduced acquisition costs of high-tech equipment enable the factory to operate with more advanced machinery, enhancing efficiency and the quality of the final product. This also shortens the return on investment period, decreases debt service costs to creditors, and yields returns on shareholder invested capital. | |
| Tax Exemption on Importation of Spare Parts | Description: Tax exemption on the importation of spare parts necessary for the maintenance and continuous operation of machinery and equipment.Practical Application: Ensures efficient maintenance and cost-effectiveness, maintaining uninterrupted operations and reducing downtime due to maintenance. This guarantees continuous and stable production. | |
| Tax Exemption on Importation of Other Goods | Description: Other goods necessary for carrying out the activity, which may include office furniture, computer equipment, and transportation vehicles, will also be exempt from import duties.Practical Application: Reduces overall operational costs and supports a complete infrastructure, enabling a more efficient and well-equipped work environment. | |
| VAT Exemption on Domestic Purchases | VAT Exemption on Raw Materials, Equipment and Tools, Services, Consumer Goods, and Operational Inputs.The VAT exemption on domestic purchases is a crucial fiscal incentive that can provide numerous advantages to a cashew nut processing factory in Nacala Porto. By reducing operational costs and enhancing profit margins, this incentive strengthens the economic viability of the factory, increases its competitiveness, and facilitates sustainable growth of the enterprise. | |
| Exemption from IRPC for the first five fiscal years. | IRPC Exemption: During the first five years of operation, the factory will be exempt from the Corporate Income Tax (IRPC). This means the company will not pay tax on its profits during this initial period, providing an opportunity to reinvest these resources in the company, enhancing infrastructure, technology, and production capacity without the tax burden.Practical Application: During the first five years, the company can focus on growing and stabilizing its operations without the concern of taxation on its profits, enabling greater competitiveness and recovery of initial investments. | |
| Reduction of the IRPC rate by 50% from the 6th to the 10th fiscal year. | Reduction of IRPC Rate: From the sixth to the tenth year, the company will pay only half of the normal IRPC rate. This 50% reduction significantly lowers the tax burden, keeping the company competitive and allowing for greater profit margins. Practical Application: After the initial exemption period, the factory continues to benefit from substantial fiscal advantages, facilitating market expansion and consolidation. The savings generated can be invested in new technologies, employee training, or expanding operations. | |
| Reduction of the IRPC rate by 25% from the 11th to the 15th fiscal year. | Reduction of IRPC Rate: From the eleventh to the fifteenth year, the IRPC rate is reduced by 25%. While not as significant as in earlier periods, this reduction still represents a substantial savings, facilitating the long-term financial sustainability of the company.Practical Application: During this period, the company is well-established, and the IRPC reduction helps maintain profitability and competitiveness, allowing it to continue growing and innovating without the full pressure of taxes. | |
| Non-fiscal incentives | Granting of land and Environmental Impact Assessment | The factory will be granted access to land required for its construction and operation,Facilitation of the Environmental Impact Assessment (EIA) process, ensuring that necessary environmental studies are conducted efficiently and promptly, enabling the factory to comply with legal requirements without significant delays. |
| More flexible labor regime, particularly concerning the hiring of foreign labor and licensing processes; | More flexible rules for hiring foreign workers, facilitating the issuance of visas and work permits for specialists and managers who are not locally available, in accordance with labor laws and the quota allowed for foreign workers.Simplification and acceleration of bureaucratic processes related to licensing factory operations and activities. | |
| Special and extensive immigration regime. | Facilitation of immigration policies for foreign workers, including visas and residence permits, enabling the factory to bring in external expertise without bureaucratic complications. | |
| Free exchange rate regime allowing offshore operations. | Permission to conduct international financial transactions without severe restrictions, facilitating the movement of capital and payments to foreign suppliers and partners, such as creditors. | |
| Decentralized and accelerated process of analysis and authorization of investment projects. | Reduction of bureaucracy and acceleration in the analysis and approval of investment projects, with local authorities in Nacala having the authority, in certain applicable aspects of the law, to make swift decisions without central approval, enabling the factory to commence operations more quickly. | |
| Direct technical and procedural assistance to the investor. | Ongoing support to investors through technical and procedural assistance, providing guidance and aid in navigating legal, bureaucratic, and operational procedures, ensuring challenges are efficiently overcome and fostering a conducive business environment for the cashew nut processing factory. |
The establishment of a cashew nut processing factory in Nacala Porto offers a range of benefits that strengthen both the project’s economic viability and regional development. The Nacala Economic Zone provides a conducive environment for investments, with significant fiscal incentives such as tax exemptions on the importation of construction materials and equipment, VAT exemption on domestic purchases, and progressive reductions in Corporate Income Tax (IRPC). These incentives reduce operational and capital costs, enabling a more efficient and competitive start to operations.
Additionally, the facilitated labor and migration regime simplifies the hiring of qualified foreign workers, ensuring the factory can rely on the necessary expertise to operate efficiently. The free repatriation of profits and access to international markets, facilitated by Mozambique’s trade agreements, significantly expand the market reach for processed cashew nuts, ensuring a promising market sustained by high global demand.
In summary, the combination of strategic location, fiscal and non-fiscal incentives, and streamlined administrative and operational facilitations creates a robust and supportive environment for the success of the cashew nut processing project in Nacala Porto. These benefits not only enhance the attractiveness of the investment but also contribute to sustainable economic development in the region, promoting employment and industrial growth.
Guia de Investimento (GLM) 2012/2013.
