Investing in Mozambique: The Role of Fiscal Incentives

Many surveys and studies in Mozambique have identifed barriers to private investment—the negative side of the business environment. Yet hardly any information is available on what actually motivates investors to commit resources to opportunities in Mozambique—the positive side of the business environment. This study examines 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 (benefícios fiscais) and guarantees on the remittance of funds abroad.  

The survey explores 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 little 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.

In this light, our study can be considered an experiment in testing the value of survey data to obtain microeconomic data on how fiscal incentives affect investment decisions.

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