Socialist Mozambique woos Western capital for revival

To overcome the burden of more than $500 million in economic losses resulting from the recently concluded -- but lengthy -- conflict in neighboring Rhodesia, Mozambique has embarked on an ambitious effort to attract private foreign investment and revitalize its economy.

But the leaders of this country, founded less than five years ago on Marxist-Leninist principles, say that closer ties to capitalism should not be interpreted as a diminished commitment to socialism.

Instead, President Samora Machel says, there is a growing realization "that there is a place in our economic development effort for the participation of international firms and foreign capital."

He was even more explicit at a recent Council of Ministers meeting. "We are open to mutually advantageous cooperation with firms from other countries. As a socialist country we do not fear [such] cooperation. . . . We need technology. We need finance."

This expansion of contacts with the West is already under way, according to high-level Mozambican officials, foreign investors, and Western diplomats here. Mozambique is negotiating with Brazilian, Italian, Swedish, French, Portuguese, Spanish, Indian, Japanese, and American companies in a number of fields, including fishing, mining, agribusiness, paper, and textiles.

Because the Portuguese colonial government lacked the capital to develop Mozambique and blocked most foreign investments until very late in the colonial period, the young nation's natural resources and potential markets are largely undeveloped.

To remedy this, the government has taken a number of steps to improve the investment climate:

* It has enacted legislation to clarify its position on nationalization.

* It has moved to demonstrate its flexibility in negotiating agreements with private investors. It has:

* Exempted critical industries from import duties on capital equipment and raw materials.

* Sought to maintain a good international credit rating through a policy of fiscal conservativism.

* Spent heavily to upgrade the country's transportation and communication network.

Arbitrary nationalization, which was rumored to have occurred with great regularity in the period just after Mozambique's independence, has been one of the main fears of prospective investors. Mozambican officials stress, however, that nationalization was limited to four industries -- oil refining, coal mining , banking, and insurance -- all of which were considered vital to the maintenance of national sovereignty and were suffering from serious mismanagement in the uncertain period after independence.

Moreover, in the areas of natural gas and offshore petroleum exploration, considered vital, the government is considering future joint ventures with private Western capital. Exploratory concessionary agreements are being negotiated.

In 1977 the People's Assembly, the country's highest legislative body, passed a law that guaranteed the right of private companies, both foreign and domestic, to expand through new capital investments, to repatriate profits, and to receive just compensation in hard currency in the event of nationalization. The law also provided for negotiation of the date after which Mozambique can exercise its option to buy out foreign investors, a provision that becomes part of the company's statutes.

Even in the four industries that were nationalized after independence, government officials say, they recognize the principle of just compensation, and negotiations are under way to determine the exact amounts involved.

Within these broad legal guidelines Mozambique banking officials and foreign investors stress the government's flexibility in dealing with both foreign and local capital. Unlike many third world countries, Mozambique does not insist on 51 percent state control. Riopele, a large textile firm employing almost 600 workers, has only 38 percent state capital; the remaining shares are held by numerous Portuguese and Mozambican private investors.

At the other end of the spectrum is the newly constructed, multimillion-dollar Mabor Tire Company of Mozambique. About 90 percent of the capital is controlled by two Mozambican state banks, with only small investments by General Tire & Rubber and its affiliate, Mabor of Portugal.

Mozambique's fiscal conservatism and its policy of promptly meeting its outstanding debts are, according to Bank of Mozambique officials, the basis of its good international credit rating and close working relationships with major investment banks in the United States, England, France, and Switzerland.

As a result, Mozambique has been able to secure loans from a wide range of sources that can be used to finance development programs and joint ventures with foreign capital.

To improve conditions for foreign investments, the Mozambican government has also expended large sums to upgrade its port and transportation infrastructure. This includes substantial improvement of the port facilities at Maputo, Beira, and Nacala; the import of 57 locomotives, valued at more than $33 million, and of several thousand trucks to replace those that were destroyed or illegally exported by settlers at the time of independence; and the allocation of $104 million for road development.