Cablegate: January 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.


E.O. 12958: N/A

Sensitive But Unclassified - Protect Accordingly

(U) The private consortium managing the port of Maputo,
Maputo Port Development Company (MPDC), announced the
completion of initial dredging on port access to the Maputo
channel. The channel's depth has been restored to 9.4 meters
and its minimum width to 100 meters. Business contact and
Port Director of Operations described the dredging as "an
important milestone" for port development. Larger vessels
can now navigate the channel by day and night through the
tidal cycle. Maputo Port is under a 15-year concession
agreement, which began in April 2003. Of Mozambique's three
port cities, Maputo and Beira require constant dredging to
accommodate vessels in the 30,000 to 50,000 ton range,
whereas Nacala is a natural deepwater port capable of
handling Cape Class vessels (up to 180,000 tons). Other MPDC
priorities include: restoration of the port's capacity,
coupled with the introduction of new tugs and improved
pilotage equipment, and considerable investment in shore-
side handling of equipment. (COMMENT: By end-March 2004,
Mozambique's three ports should be largely under private
operation, with Maputo and Nacala completely in private
hands (all terminals, dredging and piloting) and Beira under
a mixed arrangement, with the port and rail parastatal, CFM,
remaining responsible for some terminals and most common
services. The port of Nacala is the only one that has not
formally been handed over to a private consortium, with
final agreement reportedly pending agreement by the Malawi
members of the private consortium to the terms of the OPIC
supported financial arrangements. The GRM, through CFM,
still maintains ownership of all ports, however concession
agreements and the accompanying finance agreements will
bring needed investment and upgrades to the port system.
Developing the ports and increasing port capacity is vital
to continued upgrades along the Maputo, Beira, and Nacala
development corridors, which account for most of
Mozambique's transit and regional trade, and which are
supposed to serve as economic development poles attracting
new investment in agriculture, mining, and labor-intensive
industry. END COMMENT).
(U) Lusa (Portuguese news agency) reports that Vodacom, the
second cellular phone company to operate in Mozambique,
invested 456 million euros in Mozambique in 2003, which is
more than half the total foreign investment approved in-
country last year. According to Lusa, the GRM approved 673
million euros of foreign investment in 2003 (Investment
Promotion Center statistics). Vodacom began operating in
Mozambique in December 2003 and launched strong campaigns in
three key southern cities. South Africa's Telekom controls
Vodacom, and Britain's Vodafone owns 35% of the company's
(U) Coca-Cola Mozambique is under investigation for
allegedly producing and supplying poor quality products to
the Mozambican market. Coca-Cola samples have been provided
to the Ministry of Health for further analysis. The
investigation is being carried out quietly, and while local
Coca-Cola executives continue to emphasize the integrity and
high quality of their product, the GRM stated that the
laboratory would have the final say in the validity of such
(SBU) CFM and other business contacts indicate that the GRM
has submitted the offers of two of the four consortia
bidding on the Sena railway tender, Rites and Icon (India)
and Yenwin and CIRC (China), to the World Bank for
consideration. The GRM is counting on the World Bank to
provide $85 million in financing for Sena Line
rehabilitation, yet a formal financing decision will be made
by the World Bank only after an award is given and the GRM
formally requests that the Bank finance the deal. Prior to
independence, the Sena line transported about two thirds of
Malawi's total rail traffic, coal from Moatize and sugar
from areas along the Zambeze River. The Malawi traffic now
goes through Nacala or by truck through Beira or Durban (the
rail link is closed in Malawi and the concessionaire of the
Nacala line has no incentive to divert traffic from Nacala
to Beira); the cane fields have been replanted and are
producing behind a punitive surtax on sugar imports, and the
coal mines requires complete reconstruction. (COMMENT:
During the October 2003 review of the World Bank's Country
Assistance Strategy for Mozambique, the USED expressed
reservations over the economic rationale for financing of
the line except as part of a coal development project,
arguing that it should be developed, if at all, as a private
investment linked to the coal mines. Since then, American
Commercial Lines, International (ACLI) has expressed a
strong interest in dredging and operating barges on the
Zambeze River in order to transport coal and possibly sugar
to the coast. However, ACLI has met with some resistance
from the GRM and the Zambeze River Valley Authority in
gaining permission to conduct a river survey to see if this
option is viable (because it is seen as a threat to donor
financing of the Sena Line). The Prime Minister described
rehabilitation of the Sena Line as one of Mozambique's top
four priorities for 2004. A third option for transport of
Moatize coal to port is by building a 200 km connection to
the Nacala line in Malawi and thence to Nacala's deepwater
port, where Cape Class 150,000 ton vessels can be
accommodated. The Nacala line could well be the most
economically favorable. Once the GRM selects a railway
bidder, the World Bank plans to very quickly submit the
project for a final Executive decision. While ACLI argues
that barging is a cheaper alternative to transporting the
coal , the Sena Line clearly has greater political support
and, is also, apparently, the preference of Bank technical
staff. The Mission will elaborate on the project for the
USED prior to the World Bank Executive Review. END

(SBU) According to the Global Competitiveness Report 2003-
2004, Mozambique ranked 93/102 on Growth Competitiveness and
87/95 on Business Competitiveness for 2003. The Report is
produced by the World Economic Forum annually and attempts
to measure a country's "competitiveness" relative to other
countries by quantifying key economic growth determinants
such as technology achievement, quality of institutions, and
macroeconomic stability requirements. (COMMENT: Such
rankings reflect the GRM's lack of initiative to reform
certain core investment-inhibiting laws and regulations,
such as the commercial code, labor law, and business
registration process. Current investors are frustrated with
the lack of commercial and labor flexibility that exists,
and the unfriendly investment environment turns away many
potential investors that decide to invest elsewhere in the
region. The GRM's slow reform of crucial policies place it
significantly behind the rest of the region in terms of
attracting foreign investment. For instance, Botswana, South
Africa, Mauritius, Namibia, Tanzania, Malawi, Kenya and
Zambia all rank above Mozambique in both the growth and
business competitiveness categories for 2003. END COMMENT).
(U) Opening up the 28th session of the Central Bank's (Banco
de Mocambique or BM) Consultative Council, the bank's
governor stated the goals and challenges that lie ahead for
Mozambique's financial sector in 2004: financial
stabilization and adoption of international accounting and
auditing standards and procedures. The governor insisted
that his banking institution would provide a framework that
encourages the extension of financial services to rural
communities. BM will become more involved in the licensing,
contracting, and registration of private external debt,
improving the national system of payments. For the last
three years, BM has undergone management restructuring and
information technology improvements. According to the
governor, "Maintenance of national currency stabilization
confronts growing difficulties in economies like ours
(Mozambique's), where financial markets are less developed
and institutions fragile. Because of this, it is essential
that monetary policy instruments are continually revised and
perfected." Mozambique registered 7% GDP growth in 2003 and
an average inflation rate of nearly 14%.

(SBU) Executives from Delta Airlines recently visited Maputo
to discuss Delta's interest in establishing a codeshare on
South African Airways' Maputo-Johannesburg flights. Delta
already has an alliance with South African Airways to
provide a broad network of airline service between the
United States and Africa. The codeshare would allow Delta to
sell and promote Mozambique as a destination to its US
customers and would target Maputo passengers whose origin or
destination is the United States. All commercial air
traffic between the United States and Mozambique goes via
Portugal or South Africa.

(U) Tenga, Ltd., the South African macadamia nut producers,
planted their first 10 hectares of macadamia trees (4,000
trees) in the Niassa Province in December 2003. The
macadamia investment in Mozambique is a first for the
industry, and US investors in California are involved in the
Mozambique Tenga investment. The Governor of the Niassa
Province inaugurated the tree-planting ceremony and local
community business and religious leaders attended, blessing
the crops and acknowledging the launch of a new product for
Mozambique. Tenga has significant experience planting and
processing macadamias in South Africa, and recently became
involved in operations in Mozambique. To date, they have
successfully obtained land and local buy-in, constructed
roads, obtained vehicles, and planted the first crop. The
first trees will mature in 5 years. In the meantime, Tenga
will continue to improve infrastructure around the farm,
build a nursery, develop an irrigation system for crops, and
look for local producers willing to partner in macadamia
production. US investors plan to visit Mozambique and the
macadamia plantation in June 2004.
(U) Indian Ocean Aquaculture, a recent group operating in
Pemba with US involvement, grows and exports aquacultured
shrimp to the world market. The firm is looking to export
its first shipment of shrimp to the US in June, and is
currently exploring FDA regulations for this transaction.
(U) Sugar smuggling from Zimbabwe to Mozambique continues to
be a big problem along the border, according to Mozambican
customs officials in Manica Province. The same sources
indicate that several commodities are smuggled from Zimbabwe
into Mozambique, but sugar is the most highly smuggled
product because it can be acquired in Zimbabwe at a very low
price ($0.13/kg) and sold in Mozambique at $0.60/kg.
Mozambique has instituted controls at the border through the
"Frontier Guard", but this institution lacks personnel and
material. Border demarcation markings and barbed-wire fence
along the border have been torn down in several places,
allowing for smuggling to flourish. Fueling the problem is
Zimbabwe's current financial crisis, in which the highly
devalued Zim dollar makes currency trading easy and buying
products in Zimbabwe (like sugar) very cheap. Mozambican
sugar producers are very concerned about this illegal
activity, as $300 million has been spent to revitalize the
sugar plantations and factories in Mozambique and cheap
Zimbabwean sugar is flooding the domestic market. In 2000-
2001, the problem was graver, as smugglers set up informal
warehouses at the border and ferried contraband sugar
across. In recent years, the GRM has had some success in
reducing sugar smuggling, but, they say, more must be done.
According to the daily news source, Noticias, four
Mozambican sugar mills are now open and expected to produce
270,000 tons of sugar this year, a significant increase on
2003 production. The press estimates that in 2006, when more
factories are up and running, total sugar production will
reach 325,000 tons/year. (COMMENT: Mozambican sugar is
highly protected, benefiting from a 100% to 200% surcharge,
which falls mainly on the food processing industry and the
poor. While the industry argues that eventually production
costs will be competitive with the lowest cost producers in
the world, they are currently not a low-cost producer in an
industry where prices (except on quota purchases) are in any
case below the lowest production cost. The heavy protection
of the sugar industry has also placed enormous pressure on
Mozambique's customs agency; engendering both an increase in
corruption, with widespread reports of customs agents
directly involved in the illegal trade, and draconian
enforcement measures. END COMMENT).
(U) Soy production will increase in Mozambique this year,
due to a Norwegian program to buy up to 40,000 tons per year
of Mozambican (non-GM) soy, as well as Brazilian investment
in the soy industry. The GRM extended a partnership
invitation to foreign firms and will benefit from the
Brazilians' experience and knowledge in this sector. The
Ministry of Agriculture and Rural Development announced that
a 400-hectare experimental soy farm would be opened in
February in the province of Sofala.
(U) According to the Ministry of Industry and Commerce, the
agricultural sector in Nampula Province is diversifying and
growing. In 2003, the province grew and exported 9,000 tons
of sesame seeds to Japan (CARE, the global humanitarian
organization and NGO, is the main force in promoting sesame
seed culture in Nampula). The GRM also projected increased
exports from Nampula to South Africa of other agricultural
products, such as banana, honey, cassava, peanuts, beans,
and ginger.
(U) Tobacco production is seen by the GRM as a success story
for the FY03-04 agricultural campaign. This year, 37,330
tons of tobacco were produced, representing an increase of
63.5% from FY02. The Ministry of Agriculture and Rural
Development stated that this product is having better-than-
expected results due a flood of small farmers (and to a
lesser extent laborers on larger farms) entering into
tobacco production. The number of producers rose from an
estimate 30,000 in 1997/1998 to 110,000 in 2003.

(SBU) The Prime Minister signed a new decree (regulation)
covering the use of expatriate labor into effect this month
that failed to meet private sector expectations for much
greater leeway in the hiring of foreign workers. Although
the decree made some improvements (e.g. short-term contracts
of up to 180 days are considerably easier), the new decree
keeps restrictive labor policies in place, hampering foreign
investment in the opinion of private sector representatives
and donor groups. After eighteen months of negotiation and
weekly meetings with private sector employers, the Ministry
of Labor reneged on its promise to allow for up to 10% of a
firm's workforce to be contracted internationally, and
continues to require approval of each position on a job-by-
job basis. The private sector issued a press release
stating their position on the decree. At the same time, the
Development Partners Group (DPG, consisting of the heads of
mission of all major donors to Mozambique) is preparing a
letter to the Prime Minister to express regret and concern
over the legislation, highlighting the importance of
attracting foreign investment via labor and commercial
legislation reform. The GRM will begin the process of
revising its labor law in 2004, and the DPG has signaled its
concern that forward progress must be made in liberalizing
procedures if Mozambique is to attract employment-generating

Oil and Gas
(U) This month, the GRM announced a decrease in the price of
unleaded fuel in order to encourage consumption. For the
past few months, gas prices in Mozambique have been on the
rise, leading to numerous consumer complaints and lowered
usage. The GRM reduced the fuel oil price by 8.9%, leaded
gas by 4%, and unleaded gas by 8.8%.

(U) March 17-19th, Mozambique will host the Water Africa
2004 Sub-Sahara Exhibition in Maputo. This exhibition will
showcase South African, British, Zimbabwean, Italian, and
American companies' products and services in the water,
mining, and, construction sectors. Approximately twenty-
eight US firms (all involved in the water sector) have
provided company materials and brochures to be presented at
the Exhibition. Material will be displayed at a US booth and
USDOC will send a representative from Durban FCS to assist
in responding to participants' questions. The representative
will also maintain a list of local interested parties and
forward contact information to participating US firms.
(COMMENT: This show is a great opportunity for US firms to
showcase their equipment and services in the Mozambican and
African markets. Ace Event Management, a British events-
planning firm, is managing the Exhibition and offered
complimentary space for all US firms wanting to participate.
Embassy Maputo is working with USDOC and, in particular,
Durban FCS, to encourage companies to participate. END

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