Although the general investment climate in Mozambique has improved significantly over the last several years, with economic growth rates among the highest in Africa, political stability and government promotion of foreign direct investment, corruption remains a serious problem for foreign companies. In fact, most observers agree that corruption is one of the main constraints for doing business in Mozambique. For instance, the companies surveyed in the World Economic Forum Global Competitiveness Report 2010-2011 cite corruption as the second most problematic factor for doing business in Mozambique, and the World Bank and IFC Enterprise Surveys 2007 reveal that 25% of the surveyed companies identify corruption as a major constraint. Moreover, Mozambique's formal economy is shadowed by a substantial informal sector. According to the World Bank & IFC Enterprise Surveys 2007, more than three-quarters of service companies report that they must compete against unregistered or informal companies, and almost half of these companies identify the practices of competitors in the informal sector as a major constraint.

Several sources indicate that petty corruption is widespread in Mozambique. For example, the US Department of State 2008 reports that rent-seeking activities by public officials are common, whereas the World Bank & IFC Enterprise Surveys 2007 report that 15% of the responding companies expect to pay make informal payments to public officials to 'get things done'. According to Transparency International's National Integrity Systems 2007, nearly one-third of surveyed companies admit to paying bribes to public officials to expedite routine government services. The African Development Bank reports in the Mozambique Private Sector 2008 that petty corruption is perceived to be especially frequent in urban areas, where private companies are located. The US Department of State 2011 reports that a problem in solving the frequent occurrence of corruption within the Mozambican business environment is the fact that senior officials often find themselves in conflicts of interest between their public roles and their private business interests. According to the US Department of State 2007, the close ties between the private sector and the ruling party breed a range of uncompetitive practices in the country by virtually institutionalising donations to FRELIMO in some business circles in return for undue advantages.

Public procurement is an area of business activity where foreign companies are very likely to encounter corruption. For example, the World Bank & IFC Enterprise Surveys 2007 report that 32% of companies expect to give gifts to secure a government contract. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2010-2011 point to a significant extent of favouritism of well-connected companies and individuals in government officials' decisions regarding policies and contracts. Furthermore, business executives also indicate that the diversion of public funds to companies, individuals or groups due to corruption is quite common and that the lack of ethical behaviour of companies in their interactions with public officials, politicians and other companies represents a competitive business disadvantage for Mozambique. In order to best reduce the risk of extortion and demands for bribes in the procurement process, companies considering bidding on public tenders are advised to use a specialised due diligence tool on public procurement. Furthermore investors considering establishing themselves in Mozambique are generally advised to consult with experienced attorneys, to develop, implement and strengthen integrity systems, and to carry out extensive due diligence before committing funds or when already doing business in the country.

The slow and cumbersome administrative procedures in most public services fuel a high level of corruption in Mozambique. For instance, according to the US Department of State 2011, the regulatory burden created by overly complicated procedures related to obtaining various licences produces a market for corrupt practices, in which public officials often request facilitation payments. These cumbersome regulations not only fuel corruption but also pose obstacles to foreign direct investment in Mozambique. This perception is supported among others by the World Economic Forum Global Competitiveness Report 2010-2011, in which business executives cite inefficient government bureaucracy as one of the greatest constraints on business operations in Mozambique. In the same survey, companies perceive government administrative requirements to be quite burdensome. Heavy bureaucracy and rigid laws increase the costs of doing business in Mozambique. Similarly, the World Bank & IFC Doing Business 2011 reports that Mozambique performs poorly in terms of dealing with construction permits, enforcing contracts, registering property and trading across borders. Companies report that officials use time-consuming and complicated procedures to deliberately delay permits and, when the application period has expired, demand bribes for renewing a permit. Many companies consider this complicated and non-transparent administrative procedure as a major obstacle to doing business in Mozambique.

In contrast to the above, it is important to note that some improvements in the regulatory environment have been registered within the last few years. These improvements are partly the result of the establishment of the Investment Promotion Centre (CPI), which is intended to function as a one-stop shop for investors. Among a range of useful services, the CPI assists foreign investors to obtain necessary licences and permits. The Commercial Code 2005 (in Portuguese) is also seen as a step forward in relation to modernising the regulatory system. Moreover, according to the World Bank & IFC Doing Business 2011, Mozambique has made starting up businesses considerably easier by eliminating requirements for minimum capital and introducing a simplified licensing process. Starting a business in Mozambique now requires the entrepreneur to go through an average of 13 days, and 9 procedures at a cost of approximately 14% of GNI per capita, which is significantly less time consuming and less costly than the regional average.

Companies should note that the commercial court system in Mozambique does not offer effective means for settling commercial disputes. The Commercial Code 2005 provides a modern legal basis for the resolution of commercial disputes, but serious deficiencies within the judicial system have limited the impact of the code, and companies typically settle disputes privately or not at all, as reported by the US Department of State 2011. Similarly, the Bertelsmann Foundation 2011 also reports that the judiciary remains one of the weakest sectors in Mozambique. The judiciary is not only subjected to political interference from the ruling elite, but also to criminal networks and people with wealth. For disputes between international and domestic companies, the code closely follows the  United Nations Commission of International Trade Law (UNCITRAL). The National Assembly has passed alternative dispute resolution legislation and has also established the Center for Commercial Arbitration, Conciliation and Mediation (CASM), which offers commercial arbitration services. Mozambique has ratified the New York Convention 1958 and is a member of the International Centre for Settlement of Investment Disputes (ICSID), and thus accepts binding international arbitration of investment disputes between foreign investors and the state as long as provisions for such recourse have been specified in a written contract. Access the Lexadin World Law Guide for a collection of legislation in Mozambique.