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Cablegate: April 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 04 MAPUTO 000625

SIPDIS
STATE FOR AF/S
PRETORIA FOR JRIPLEY
JOHANNESBURG FOR RLO - BNUELING
FCS - WCENTER
USDOC FOR AHILIGAS
PASS USAID FOR AA/AFR AND AFR/SA
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: APRIL MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE


-----------------------
FOREIGN INVESTMENT
----------------------
1. (SBU) With significant Mozambican official travel to
China in April (President Chissano, Minister of Industry and
Commerce Morgado, Minister of Labor Sevene, Minister of
Agriculture Muteia, and others), the Government of China
announced its willingness to support the building of mega-
projects in Mozambique, such as dams, irrigation systems,
and other projects to enhance socio-economic development.
The Chinese are also interested in investing in the valuable
Moatize coalmines located in Tete province and in
rehabilitating the Mocuba textile factory in Zambezia. To
formalize Chinese intentions and Mozambican willingness to
cooperate, President Chissano and his counterpart, Hu
Jintao, signed a new economic and technical agreement
between the two countries. Under this agreement, there will
be cooperation in the areas of agriculture, education,
health, and mining. (COMMENT: China and Mozambique have been
long-time allies and diplomatic partners. In the area of
aid, China has built several governmental and military
facilities for GRM use. The Chinese are bringing more and
more operations to Mozambique in the areas of construction,
mining, and agriculture. With this reaffirmed pact of
cooperation, China could become an even bigger player in a
greater number of sectors. This creates USG concern, as the
GRM tends to turn a blind eye to illegal Chinese operations
taking place in Mozambique, such as illegal fishing and
deforestation in the central-northern regions. END COMMENT).

2. (U) A study is now underway to assess the viability of
building a fuel pipeline from the port of Nacala to Malawi.
According to Minister of Transportation, Tomas Salomao, the
study will make recommendations to the Mozambican and
Malawian Governments as to the viability of the project and
the potential for the pipeline supplying Zambia and parts of
the DRC. The building of the pipeline was recommended during
the February 2003 Nacala Corridor's Investment Conference.
(COMMENT: A similar fuel pipeline already exists in
Mozambique's central region, traveling from the port of
Beira to Zimbabwe. END COMMENT).

3. (U) The South African timber company, Komatiland Forests,
has assumed control of the Manica Forest Industries
(IFLOMA). Komatiland is expected to manage the 18,700
hectares and three production units of IFLOMA and will
inject thousands of dollars into rehabilitation of
infrastructure, acquisition of equipment, and in planting
and operational services. Reactivation of IFLOMA is expected
to create around 200 new jobs, according to the local press.
Komatiland has promised to train staff and ensure local
processing and export of its wood products.

------------------
MACROECONOMICS
------------------
4. (U) On April 15, Prime Minister Luisa Diogo launched the
opening of the second Africa Partnership Forum of NEPAD.
The USG representatives attending this forum were USAID
Assistant Administrator for Africa, Constance Newman, and
American Ambassador to Mozambique, Helen La Lime. Diogo
stated that African countries can only solve their many
problems if they work together, "complemented by support
from their partners in the developed world" (AIM news
report). Although most of the two-day forum took place
behind closed doors, the themes discussed by African leaders
and their cooperation partners (donors and funding agencies)
were clear from Diogo's opening. The Prime Minister
described the continuing issues of underdevelopment, poor
economic performance, high levels of foreign debt, weak
access to scientific and technological advances, and the
prevalence of deadly diseases in Africa. She described the
devastating impact of HIV/AIDS on Africa as a public health
problem and a question of strategic and development
security, partially negating efforts to train and retain
skilled staff. According to Diogo, it is investment in
education and training that will bring the continent out of
its bleak social and economic state. Also crucial to this
effort is a change in the rules of international trade,
allowing favorable conditions to developed markets for
African goods. Lastly, Diogo mentioned the burden of
Africa's foreign debt, saying that it has reached
"unsustainable levels" with countries obliged to divert a
large part of their GDP to debt payment. The Prime Minister
called for greater debt relief and praised such steps as the
World Bank/IMF Heavily Indebted Poor Countries (HIPC) debt
relief initiative.

5. (U) On June 2-4, the World Economic Forum will host the
Africa Economic Summit 2004 in Maputo, Mozambique. The
summit will gather leaders from business, politics, and
civil society, serving as a platform to rally key actors to
address the major development challenges facing Africa. At
the event, participants will engage in dialogue to advance
the cause of Africa's integration into the global economy.
The tentative USG representatives to this forum are Acting
Assistant Secretary for the Bureau of African Affairs,
Department of State, Charles Snyder, and Acting Deputy
Assistant Secretary for Africa, the Middle East, and South
Asia, Department of Commerce, Holly Vineyard.

6. (U) The Government of India cancelled all Mozambican
public debt to India this month, amounting to about $3.8
million. According to local news reports, the Government of
India also expressed willingness to discuss possible
alternatives for dealing with private debt, estimated at $6
million. Under Mozambican law, one alternative would be to
turn this debt into investment through a swap. Furthermore,
India has made available a line of credit of $20 million,
intended to promote projects that will import goods and
services from India, thus tying the aid. In anticipation of
this program, many Indian businesses are drawing up projects
in such areas as rural electrification, pharmaceuticals, and
food industries.

------------
AGRICULTURE
------------
7. (U) A recent study undertaken by the US NGO Technoserve
revealed that Mozambique has significant potential for
horticulture production in the central regions of Sofala and
Manica. The NGO found that 550,000 hectares in the Beira
corridor could be used in the large-scale production and
exportation of fruit, vegetables, and flowers to markets
such as England, South Africa, and Europe. Technoserve
identifies and lends technical support to small-medium sized
enterprises producing roses, pineapples, bananas, beans,
citrus fruits, and vegetables. With appropriate help from
the donor community, Technoserve estimates that $30 million
could greatly improve the infrastructure situation that
limits the volume that many producers are able to achieve.
The major infrastructure needs include: improving the
electricity network, expanding the water supply, building
small dams, improving the rural road network, and
establishing financial institutions that can provide credit
to producers. Once infrastructure is improved, producers
could increase capacity and export more to the world market.
According to Technoserve, this is an activity that will
bring profit to the Mozambican agricultural sector and small-
medium sized producers.

--------------------
MINERALS AND ENERGY
--------------------
8. (U) There are positive signals that implementation of the
Moma Heavy Sands Project will move forward as planned. Irish
firm Kenmare Resources contracted South African engineering
group Bateman and Australian joint venture partner Multiplex
to build the Moma Titanium Minerals mine in Nampula
Province, Mozambique. Kenmare estimates mine completion will
take two years. Once operational, the mine will produce
ilmenite, zircon, and rutile for export, intended to compete
in the same market as South Africa's growing titanium coast
at Richard's Bay. Kenmare stated that a debt-funding
package is being negotiated with a lender group comprised of
the European Investment Bank (EIB), the African Development
Bank (ADB), a Dutch development finance institution, a
German development finance institution, and South Africa's
largest retail Bank, ABSA. The firm estimates the life of
the mine to be more than fifty years and expects the project
to generate revenue of about $85 million/year. According to
Kenmare, sales contracts covering more than 50% of the first
five years have already been negotiated. The entire project
is budgeted at $360 million. (COMMENT: A similar mineral
mining effort is underway in the southern province of Gaza,
the Limpopo Corridor Sands Project. The Limpopo Sands
Project is managed by Southern Mining Corporation (South
Africa), Western Mining Resources (Australia), and
Industrial Development Corporation (South Africa).
Mozambique has tremendous potential in the mining sector due
to the plethora of mineral resources found along the
coastline. This sector is just beginning to gain momentum
and could bring sustainable profits to foreign investors and
Mozambique alike. END COMMENT).

--------------------
BANKING AND FINANCE
--------------------
9. (U) A bill amending the financial regulation of banks and
other financial institutions was brought before the
Mozambican Parliament in April. The bill tightens banking
supervision and seeks to ensure that funds obtained
illicitly do not enter the banking system. The bill hands
regulatory powers previously in the hands of the government
over to the Central Bank - the Bank of Mozambique. Thus, the
Central Bank, rather than the Finance Ministry, would be
given the authority to authorize new financial institutions,
revoke such authorizations, permit or refuse mergers, and
authorize the dissolution of banks and similar companies.
The Central Bank is already empowered to freeze any account
that it suspects to be used in criminal activities. Both the
Legal Affairs Commission and the Planning and Budget
Commission of the Assembly of the Republic fear the bill has
gone too far in transferring power from the Finance Ministry
to the Central Bank.

--------
LABOR
--------
10. (U) In April, the GRM increased the country's statutory
minimum wage by slightly more than the 2003 inflation rate
of 13.4%. Retroactive to April 1, 2004, the minimum wage for
industry, services, and the civil service rose by 14%, from
$41 to $47 per month. The minimum wage for agricultural
works rose by 15%, from $29 to $34 per month. Although the
hike in wages for agricultural workers was higher, there is
still a significant gap between wages for different groups.
The GRM is addressing this issue. In the private sector,
wages above the minimum are generally fixed through
collective bargaining between employers and trade union
committees. In the public service, all wages are fixed by
the government. Low wage state workers received a 14%
increase, whereas mid-high wage state workers received only
a 10% wage increase. This decision conflicts with the
declared government policy of decompressing salaries in
order to retain skilled staff in the public administration.
The result may be a further migration of highly trained
workers out of state employment into the private sector,
foreign agencies or NGOs1). Each year, the statutory minimum
wage is negotiated in a tripartite Consultative Council,
between the trade unions, employers' associations, and the
government. Negotiations went into deadlock after employers
refused to negotiate higher than a 10% increase and the
unions refused to move below a 16,9% increase. At that
point, the matter was handed over to the GRM.

11. (U) On May 5, the USG will hold a Labor Seminar intended
to present the results and analyses of several studies,
commissioned by the US Department of Labor, on the labor
system in Mozambique. The opening report will present a
review of the labor law and recommendations for
liberalization and reform; the second report will present
the situation of industrial-based bargaining in Mozambique
(the USG has provided significant training to Mozambicans in
this area), and the third will address the similarities and
contrasts between the Mozambican, Kenyan, Malaysian, and
South African labor systems. The seminar will bring together
Mozambican government officials, donors, private business
organizations and employers, unions, and academia for
discussion on these topics. (COMMENT: Mozambique will begin
the process of revising its labor law in 2005. The current
law is ambiguous, burdensome on employers, and discourages
foreign investment. The USG hopes to continue its efforts,
through the US Department of Labor and USAID, to move
Mozambique's labor law towards greater openness and
liberalization. Additionally, the USG is working with local
business organizations to find ways to reduce HIV/AIDS in
the workplace (Project Hope and Empresarios Contra SIDA).
END COMMENT).
LA LIME

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