The liberalizing of Mozambique's economy began with the initiation of its economic recovery plan (ERP) in January 1987. Included in the program were measures to stimulate the private sector, an effort reinforced in 1990 by further legislation. In June 1993, the investment code was reformed to put foreign and local investors on an equal footing with respect to fiscal and customs regulations. The parastatal sector has been progressively privatized, with only 11 large state-owned industries left in 1999.
Certain tax incentives are available to encourage direct foreign investment, including a 50% to 80% reduction in taxes. The flow of capital is liberal. Regulations issued in 1999 established an Industrial Free Zone Council, which approved the first free zone enterprise in Maputo, MOZAL, an aluminum smelter. Companies in the free zone must engage in nontraditional industry and export at least 85% of production.
In 1998, foreign direct investment (FDI) inflow to Mozambique totaled about $235 million, up 365% from 1997. FDI inflows peaked at $382 million in 1999 then fell to $139 billion in 2000. In the period 1998 to 2000, Mozambique's share of world FDI inflows was almost twice its share of world GDP, a considerable improvement on its performance 1988 to 1990, when its share of FDI flows was only 30% of its share of world GDP. In 2001, FDI inflow was a near-record $255 million. The leading sectors for foreign investment in Mozambique have been industry, agribusiness and fishing, finance, and tourism. Major foreign investors include South Africa (over 60%), Portugal, Great Britain, Hong Kong, and the Netherlands.