Cahora & Tete

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Challenge and opportunity in Tete

Challenge and opportunity in Tete

Challenge and opportunity in Tete

The last 12 months have seen a notable change in the pace of growth and development in the Tete region. After what has been a period of extremely rapid growth on the back of the coal boom, factors such as a depressed world economy, low commodity prices and logistical challenges have led to the shelving or delaying of some large new capital projects. Whilst there has been perception of doom and gloom in the air, this period in the evolution of a mining region presents some important and often overlooked opportunities.

Many foreign companies previously found themselves under enormous time pressure to incorporate a local Mozambican company as a pre-condition to being awarded a contract or tender. This often led to these companies not being able to plan and prepare thoroughly their strategic growth and legal and tax structures for their Mozambican entities. Companies looking to establish in Mozambique currently have the opportunity to fully explore ways to maximize their investment, and be prepared for new contract and tender opportunities as they arise.

One of the most often cited barriers to establishing a business in the Tete region has been the enormous cost attached to land and real estate. This was previously due to a complete lack of quality affordable accommodation and commercial property. Recently, with the completion of several residential developments, as well as the opening of a number of hotel, lodge and commercial projects, an oversupply has developed in the market and this has led to a sharp decrease in prices. The location and accessibility of any property has also become a more important factor. The depressed real estate market presents a clear opportunity for companies looking to establish themselves in Tete.

The operating mines are still generating a considerable amount of business in and around Tete, and although there are limitations to this market, there are opportunities to compete both in quality and in price. Ever more evident budgetary challenges for both multinational and junior miners have meant that savings have become a means to mitigate the poor trading conditions. Savings can however also come about through purchasing better quality materials and spares, thereby lowering the repairs and maintenance bill. This has created opportunities as many contracts have either been renegotiated or re-tendered. Being creative and flexible in negotiations and tendering positions, considering any possible value addition, will increase competitiveness.

Another more apparent phenomenon is that smaller, newer players on the market are able to compete more effectively in their pricing as they have much lower overheads, and are therefore able to undercut their larger competitors.

Another often overlooked opportunity is presented by the existing established companies operating in Tete. For example, Universal Leaf Tobacco recently announced the installation of an additional processing line at the Tete facility, thereby doubling its tobacco processing facility.

Similarly, locally manufactured or grown produce is given preference by many of the mining companies who have strong commitments and charters to link up with local business, or to facilitate opportunities for entry into the Tete market. The Rio Tinto Local Business Facilitation Centre is one example of how important this commitment is to the large market players.

Realistically, Tete and Mozambique have many challenges, most recently those being highlighted are criminality and political instability, however despite these difficulties, the opportunities are still there, as evidenced by a steady flow of new companies establishing in Tete in a number of fields, as well as major capital undertakings such as power stations and the new rail infrastructure projects.

Opportunities do require a good creative approach and this cascades down into creating business plans based on sound knowledge of market requirements and the costs of operating in Tete, and setting up a suitable corporate entity with the correct legal structure to ensure the business plan can be executed.

More in this series:
Funding your investment in Mozambique
Secure your Mozambique investment
6 Tips on importing goods into Mozambique
Starting business in Mozambique

More from this issue:
Zambezi Traveller (December 2013)

More from the Zambezi Traveller:
Cahora Bassa & Tete Destination Profile