FORESTRY INDUSTRY: Swedish forestry investor hit by byzantine rules and racism in Mozambique

open | 15 January, 2006

JOHANNESBURG. Swedish private investor Mikael Salin has, despite all odds stacked against him, built a timber milling- and exportation business in the northern Mozambican province Cabo Delgado since 1997.
Mikael Salin and his partners have invested $ 1.5 million in the company, Mozambique Madeira- which cuts and exports hard wood to the Far East, Germany and South Africa.
The business exports about 2500 cubic meters of wood on average annually. It could break even for the first time this year, says Mr Salin.
But it has been a long hard journey that´s made Mikael Salin clear in his mind:
“I wouldn´t do it again. I do not recommend individuals to invest in countries like Mozambique. Foreigners have everything stacked against them. On a 0 to 10 scale they are close to zero”, says Mikael Salin.
Racism against whites, an unpredictable legal system and constantly changing directives are but a few factors that, belives Mikael Salin, create a constant minefield for the private investor.
He has confronted it all, he was even close to be locked up in jail by his former Mozambican partner, who, says Salin, had done a deal with the judge.
“It was only through the direct intervention of the Swedish Ambassador, who approached the Mozambican Chief Justice, that I was not thrown in jail”, says Mikael Salin, still clearly shaken by the event.
Mikael Salin cut his teeth during the late eighties property boom in Europe and speculated heavily in the Swedish krona before it was set free in 1992.
That is also how he built up a small fortune, some of which he wanted to invest in a frontier environment.
He therefore was mentally prepared for taking risks. But the scare and the fright of investing in high risk financial vehicles in Europe was nothing compared with what Mikael Salin has experienced in Mozambique.
He initially invested in 1997 after five trips to the northern Cabo Delgado province, where a Swedish friend of his already lived and worked.
It all was cool and cosy initially. Mozambique, with its smooth, gentle people, paradise-like coastline, pragmatic leaders after 30 years of war and World Bank approved policies in place, looked promising for an investor prepared to take calculated risks. The economy was, and still is, growing by leaps and bounds, at a rate of some 7-8 percent annually.
It looked like a safe bet as he also, side by side, had experienced compatriots and friends working with him.
Mikael Salin also did what was expected under Mozambican law, he brought in a Mozambican partner.
As soon as Mikael Salins money had arrived in the country, and there was no way back, the scen and the mood started to change, says Mikael Salin.
“The Government continued to change the guidelines for tree felling on an annual basis. It created a very difficult situation for us”, says Mikael Salin.
Last year was one of the worst for the company.
“We have a concession to fell timber, but it nevertheless has to be renewed annually. Last year we received our license only in October. It meant that we had two months to cut and export the wood as the Government, according to the present rules, can confiscate all wood that is not exported before the end of the year”, says Mikael Salin.
Last year, he admit, was a particularly bad years. The previous Governor made all the difference and the licenses the years before had been issued relatively smoothly.
Then a new Governor in Cabo Delgado came in and that changed the situation under which the company operated quite dramatically.
For starters, the new Governor was did not inclined to answer letters and, according to Salin, the Governor was generally uncooperative,
“Its quite strange how this new Governor operates, it is far from clever as it means that his province can expect much less development assistance from Sida if he he is not pro-active and co-operative”, comments a business analyst in Mozambique.
Only through the intervention of the Swedish Ambassado Maj-Inger Klingvall, who wrote a letter to the Governor and contacted the Interior Minister, who was the former Governor of Cabo Delgado, did last years license quota materialise.
“By and large the problem is that they are changing the goal posts annually so you never know the rules and you cannot plan”, says Mikael Salin.
Mozambique has inherited its hierarchical, Byzantine Government administration system and legal frame work from the old colonial power Portugal.
Despite all the time, energy and money spent on administrative and legal battles, Mozambican Madeira is doing okey. Mikael Salin´s spirits, therefore, are not that low as it may sound.
He has a good management in place in Cabo Delgado at the moment, led by South African managers.
“There is no saw mill staff available in Mozambique and we did try it out with a Swedish consultant who was brought in but he did hardly anything”, says Mikael Salin.
It would be a very different story, he says, if the company had been a large corporation.
“I would then had earned the immediate support and protection from high government officials.”
Investors, big and small, are, after all, pooring money into Mozambique. Mikael Salin was close to loose all his invested money. But for now it does look a bit brighter.

Africascan Comment

It is not our intention to discourage people to invest in Mozambique, a country that has been the darling of the World Bank and a favorite destination for foreign aid for more than a decade - even to an extent that IMF have put the breaks on more aid to Mozambique. IMF does think the country has reached its limit and belives that too much aid is inflationary.
Mozambique is highly aid dependent, the Nordic countries are among the largest donors.

To the point. Mozambique has a big business friendly government, but smaller companies basically must fend for themselves in a less than transparent environment. That translates into lots of fees to local lawyers.

Despite the abundance of red tape and rampant corruption money is flooding in to Mozambique. Not only from large corporations. Private investors and syndicates have been buying up long stretches of land for costal property development – mainly directed towards the tourism market.

Still the bureaucracy and the legal framework is simply not for foreign mortals. Understanding of Portuguese is essential, in particular if you, as Mr Salin, venture into far flung provinces.