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Cablegate: December Monthly Economic Wrap-Up: Mozambique

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 MAPUTO 000030

SIPDIS
STATE FOR AF/S
USDOC FOR JDIEMOND
JOHANNESBURG FOR BNUELING
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: DECEMBER MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE

REF: MAPUTO 01757

-------------------
FOREIGN INVESTMENT
-------------------
1. (U) In December, KPMG Mozambique announced the "Top 100
Businesses in Mozambique" for 2002. The list was topped by
Mozal, the large South African-owned aluminum smelter,
generating the highest revenues for a firm in-country
(foreign or nationally-owned) in 2002. Six US companies
ranked in the Top 100. In descending order of generated
revenue, these companies include: Coca-Cola, Mobil, Mobeira
(owned by US corporation Seaboard), Avis Rent-a-Car, Colgate-
Palmolive, and KPMG (REFTEL).

2. (SBU) The three consortia bidding on the Sena railway
tender, Rites and Icon (India), Yenwin and CIRC (China), and
the Beira Corridor Company (Zimbabwe/South Africa), should
expect an award in the beginning of 2004. Contacts from the
Zambeze River Valley Authority indicate that the award will
most likely go to the Chinese consortium, as it was valued
as the most affordable bid. CFM, the Mozambican Ports and
Railways Company, has made its recommendation to the
Economic Council of Ministers and the decision now sits with
the GRM. The company awarded this contract will be
responsible for rehabilitating the Sena Line (destroyed
during the civil war) that travels from the lucrative
Moatize coalmines to the port of Beira. (COMMENT: At the
same time, there is a US company interested in launching a
feasibility study on the Zambeze River to explore an
alternative to exporting coal from Moatize to the coast via
rail. The US firm visited Mozambique in December and met
with various stakeholders, including the GRM. Despite new
economic arguments, rehabilitation of the Sena line seems to
be a political decision and it does not seem likely the GRM
will endorse the barging option. However, in discussions
with the World Bank, this organization has indicated they
will not finance any project that is not economically sound,
possibly leading the GRM to reconsider a barge option. END
COMMENT).

----------------
MACROECONOMICS
----------------
3. (U) As reported by the daily newspaper, "Noticias", the
Prime Minister told the Parliament that the GRM is planning
on eight percent growth in the country's GDP for 2004.
Introducing the country's Economic and Social Plan for the
year, he predicted growth in all sectors of the economy,
with mining and manufacturing being the highest-growth
sectors. The only sector where growth will most likely be
negative is in construction. This is a result of the
completion of two gigantic projects in 2003, phase 2 of
MOZAL and the natural gas pipeline constructed by SASOL. As
for the 2003 estimates, the PM Mocumbi said GDP had grown by
about seven percent. Inflation figures rounded out at eleven
percent for the year, considerably higher than the GRM had
hoped. Much of this inflation is attributed to the higher
prices consumers have to pay for South African goods with a
strongly valued rand.

4. (U) The Governor of the Central Bank gave his review of
the 2003 economy and forecasts for 2004. He noted that
Mozambique's economy remains heavily dependent on imports,
notably food products from South Africa. The Bank's
estimates indicate that the inflation rate will be above
10.8% for 2003. Like the PM, the Governor attributes the
higher inflation in 2003 to the strengthening of the rand
(and the economy's dependence on South African products), as
well as to a decline in the supply of goods due to the
drought and an increase in tariffs for water, electricity,
and telephones. For 2004,the Bank forecasts an "8 percent
economic growth and a 9 percent inflation rate".
Accordingly, it estimates a 16 percent increase in monetary
expansion and a 12 percent increase in credit to the
economy.

--------------------
TELECOMMUNICATIONS
--------------------
5. (U) Vodacom officially launched cellular services in
Mozambique in December, opening the industry to competition
for the first time. Until now, government-owned Mcel served
as the sole cellular service provider. Vodacom plans an
initial investment of $260 million in Mozambique. As a guest
speaker at the formal launching ceremony, President Chissano
highlighted the importance of rapid access to information.
The introduction of an additional cellular service provider
should reduce transaction costs, increase the quality of
cellular products and services, expand the network of
communications, and allow more choices for the consumer.
Chissano welcomed further cellular companies interested in
entering the Mozambican market, saying the country would
keep its doors open to increased competition and investment.
In its opening phase of operations, Vodacom Mozambique will
cover six locations: Maputo/Matola, Xai-Xai, Bilene, Nampula
and the roads from Maputo to Swaziland and Maputo to South
Africa. For the first time, customers will be able to pre-
pay for roaming, allowing use of their cell phones from
South Africa to Mozambique. Vodacom Mozambique Executive
Director announced that Vodacom would capture 45% of the
Mozambican market in less than three years. Quoted by a
local news source, he believes that the quality of customer
care and efficiency of network service provided by Vodacom
will attract the target audience. Vodacom also operates in
South Africa, Lesotho, Tanzania, and the DRC. Mcel is
fighting the competition by offering perks for current
customers, including a number of free text messages and
better contract deals, and has begun lowering international
rates. It is estimated that Mcel has 400,000 clients,
saturating the market. Vodacom has undertaken an aggressive
promotional campaign, including advertising and opening of
new stores.

----------
AVIATION
----------
6. (U) The Mozambican Aeronautics Company (IAM),
responsible for the repair and maintenance of planes, has
declared bankruptcy, citing the lack of a local market for
its services. Seventy percent of IAM's shares are held by
the Portuguese group OGMA, while the Mozambican light
aircraft company, TTA, holds the remaining thirty percent.
Speaking to the press, a lawyer for the firm noted, "During
the last two to three years we did not repair a single
plane." He went on to say that most planes operating in
Mozambique are repaired in South Africa.

---------
ENERGY
---------
7. (U) The African Development Fund (ADF) approved a $12.9
million loan and a grant of $2.81 million to finance an
Energy Access Reform Program in Mozambique. This program
plans to expand the electric network, specifically to rural
areas. With the participation of the private sector, the
program will provide electricity to 400,000 people by 2007;
300 schools and health centers in the project area would
have access to solar energy. The program also includes a
reform of the electric power sector, installation of
electrification systems, promotion of renewable sources of
energy, and auditing services. These projects will be
financed by the ADF, the World Bank, World Fund for the
Environment, Nordic Development Fund, and the GRM at a total
cost of approximately $80 million.

-------
LABOR
-------
8. (SBU) The Economic and Social Council of Ministers
passed a new labor decree this month that will fare worse
for employment of foreign labor. Private sector groups have
argued that the new decree will hamper investment by keeping
restrictive labor policies in place. After eighteen months
of solid negotiation and weekly meetings with private sector
employers, the Ministry of Labor reneged on its promise to
create a decree allowing for 10% of a firm's workforce to be
contracted internationally. Private sector organizations are
furious about the passage of this decree and are making
pleas to the Prime Minister not to sign the legislation. If
endorsed by the PM, the labor decree could stifle the
private sector's ability to contract skilled labor and bring
in the necessary technological know-how to operate modern
firms. As the situation stands, there is a dearth of
technically qualified workers locally and firms must be able
to have the flexibility to choose a percentage of their
workforce based on varying skill levels. Private sector
organizations are pleading with the GRM to scrap the new
decree and leave the 1999 decree in place, despite that
decree's many shortcomings. (Comment: As of January 8,
2004, the PM had not endorsed the decree. Private sector
umbrella group CTA is currently engaged in negotiations with
the Ministers of Labor, Planning & Finance, and Industry &
Commerce to modify the decree and make it friendlier to the
business community. End comment.)

9. (U) Luisa Diogo, Minister of Planning and Finance,
announced that the government is doing its "utmost" to
ensure that all state employees receive their monthly wages
on time, according to the Mozambican News Agency, AIM. Diogo
said her Ministry has tried to identify reasons for recent
delays in payments to public sector employees. According to
the Ministry, reasons ranged from theft of wages, to
"irresponsible" behavior, to the absence of banks. This
month, the 100 year old system of using "bank titles" to pay
out wages was replaced with direct, computerized payments
from the Ministry of Finance to the beneficiary
institutions. Diogo admitted there have been some "hiccups"
with implementing the new system, but that things should run
smoothly starting with payment of December wages.

--------------
OIL AND GAS
--------------
10. (U) The oil terminal at the Port of Beira is operating
far below its level of capacity, reports the local
newspaper, "O Autarca". The terminal is prepared to receive
large ships with up to 50,000 tons of oil, but there is a
critical problem of blocked access to the channel due to
heavy sedimentation and the need for further dredging.
Currently, the port can only receive ships with a maximum of
30,000 tons of oil. Constructed in 1994, the Beira Port Oil
Terminal is considered one of the most modern in the
Southern African Region. CFM, the Mozambican Ports and
Railways Company that manages the port, earns $1.8 for every
cubic meter of oil brought into port. This year, 1,000,000
tons was planned. However, according to numbers released in
September, the port had only achieved the importation of 52%
of this planned amount. The discrepancy in figures may be
due to the inability of ships to enter Beira with large
amounts of petroleum as intended.
HANKINS

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