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Cablegate: May 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 000712

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: MAY MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE
?
-----------------------
FOREIGN INVESTMENT
----------------------
1. (U) A major Zimbabwean horticultural company is shifting
its operations to Mozambique and Zambia as a result of land
seizure in Zimbabwe. Ousted by the Zimbabwean Government,

Kondozi Company will be granted 800 hectares of land in the
Manica Province by the GRM, according to AIM Reporting.
Hundreds of Zimbabwean farmers are already working in this
province, overwhelmingly in the agricultural sector.
Majority shareholder, Edwin Moyo, said his firm would buy a
further 2,000 hectares in Gwembe Valley, Zambia. The
company will operate with advanced irrigation equipment and
is financed by big names such as the South African
Industrial Development Corporation (IDC) and Barclays Bank
International.

------------------
MACROECONOMICS
------------------
2. (U) The leaders of the New Partnership for Africa's
Development (NEPAD) convened in Maputo to assess NEPAD's
progress and acknowledge the challenges that lie ahead for
the continent. Representatives from twenty African countries
attended the meeting of the NEPAD Implementation Committee
to discuss, among other things, poverty eradication and
achievement of the UN's Millennium Development Goals.
Improving Africa's infrastructure and food security are high
priorities for the NEPAD group.

---------------------------
PORTS, ROADS, AND RAILWAYS
---------------------------
3. (SBU) With the April announcement that Rites and Ircon, a
private Indian consortium, was awarded reconstruction and
management of the Sena Railway Line (leading from the coast
to the extensive coal deposits at Moatize), as well as
management of the Machipanda Line (leading from the coast to
Zimbabwe), pol/econoff and USAID paid a visit to the Ports
and Railways Company (CFM) to speak with key contacts. The
GRM, through CFM, will be in negotiations with the Indian
group to determine subcontract arrangements, management
details, and sign the formal contract next month. Also,
later in June, the World Bank will appraise the agreed-upon
terms, and assuming economic feasibility, the project will
be sent to the World Bank for a $120 million loan/IFC/MIGA
package approval in July. Mission officers think this
timetable is optimistic, considering the hesitation the GRM
places on big infrastructure and privatization deals. On the
other hand, unlike other projects, reconstruction of the
Sena Line has huge political impetus and has already been
treated as a top governmental priority. CFM board member and
civil engineer, Domingos Bainha, asserted that Sena Line
reconstruction would take three and a half years. Important
products likely to be carried on the 600km line are:
limestone, cotton, sugar, wood, and eventually, steam and
coking coal from the Moatize mines. Bainha also noted that
the Sena Line would carry passenger traffic. According to
CFM, the line will increase employment (creating 1500 jobs
at the start of construction), transport goods and people,
spur economic development, and revive and grow small towns
in the central provinces. CFM will be a 49% shareholder in
the construction and management of the line. COMMENT: The
Mission believes there are several economic and financial
inconsistencies with the push forward to fund Sena Line
reconstruction. With a low tonnage capacity, CFM expects 1
million tons of coal/year to be transported and exported,
once reconstruction is complete. Car size and axle load, as
well as limited capacity at the shallow and muddy port of
Beira, will not allow for rapid expansion of coal exports.
This figure pales in comparison to the 80 million tons of
coal/year that is shipped out of the closest regional
competing port, Richard's Bay, South Africa. USG questions
the economic viability of the Sena Line, especially
considering the overwhelming financial cost to rebuild the
infrastructure. The are alternatives for transporting the
Moatize coal that may be more economically sound; including
construction of a spur to the Nacala Railway Line (in the
North) and use of the natural deep water port of Nacala, or
barging coal along the Zambeze River (in the central region)
to load at sea. END COMMENT.

--------
ENERGY
--------
4. (U) With an award out for reconstruction on the Sena
Railway Line, conversation about investors for the Moatize
coalmines is increasing. The Minister of Mineral Resources
and Energy, Castigo Langa, announced that the GRM is
preparing to attract possible investors for this project by
releasing a tender at the beginning of June. Several
international mining firms have shown interest in competing
for the coalmines by conducting evaluations on mine capacity
and potential. One such group is Compania do Vale do Rio
Doce, a well-known Brazilian mining firm. The GRM estimates
that the mine has the capacity to supply up to 10 billion
tons of coal, but world export of the product depends on a
functional railway line to the coast, which may take another
three and a half years to complete (Sena Line).

------------
AGRICULTURE
------------
5. (U) In the present agricultural campaign, Mozambique is
expected to harvest over two million tons of main crops, a
target set by the Ministry of Agriculture and Rural
Development (MADER).

6. (U) In 1999, MADER launched PROAGRI, the GRM's sector
wide investment program, which counts with broad donor
support including that of USAID. One of the overarching
objectives of the program is to strengthen the public
sector's ability to perform its core functions in a market
economy: policy making; efficient delivery of some key
agricultural support services; and the establishment of
framework for the sustainable and transparent management of
natural resources. Although new systems for financial
management and investment planning were successfully
introduced, the Ministry has lagged on the more structural
reforms required in staffing and ministry re-organization.
Further, the consistently tardy transfer of budget resources
from the Ministry of Planning and Finance has compromised
the achievement of field-based results, with very few
farmers registering improvements in the quality and
relevance of agricultural support services delivered in the
field since the launch of PROAGRI. According to the Vice-
Minister of Agriculture, Joao Carrilho, access to credit and
lack of infrastructure that allow farmers to bring products
to market are major obstacles for small producers in
Mozambique. At present, a multi-donor appraisal team is
reviewing the proposal for the second five-year tranche of
PROAGRI, or PROAGRI II. The proposal under review
introduces some changes that will increase effective
decentralization to provincial and district levels and
ensure a more results oriented program. A new institutional
configuration that streamlines functional responsibilities
is also proposed. USAID will continue supporting this
important process but will increasingly tie its budget
support to specific policy and agricultural activities.

7. (U) According to the National Institute of Sugar (INA),
sugar production will rise 20 percent in 2004. This
expectation is gleaned from the per hectare yield projection
of 71 tons/hectare in 2003 to 76 tones/hectare in 2004.
Sugar production was decimated by the civil war, as most
factories were demolished. Post-1992, actions have been
taken to rehabilitate four sugar factories, namely
Mafambisse and Marromeu factories, both located in the
central region of the Sofala Province and Maragra and
Xinavane factories in the Maputo Province. Other giant
factories located in Zambezia and Sofala still lack
investment and sit inoperative. The GRM hope is to bring the
production of sugar back up to pre-civil war levels,
increasing output and local employment.
?
--------
LABOR
--------
8. (U) On May 5, the USG sponsored a half-day labor seminar
focused on Mozambican labor law reform. The seminar, funded
by USDOL and managed by the Mission, attracted over 60
participants from the private sector, the GRM, academics,
unions, legal experts, and donors. The seminar was hailed as
the most covered USG press event of the year in Mozambique.
The seminar featured four researchers, presenting analyses
on Mozambican labor law, union-based bargaining in
Mozambique, and Mozambique's labor system in comparison with
regional competitors. At the end of each presentation,
authors suggested recommendations for reform and the
audience launched into debate on various labor topics.
Success of the seminar was marked by the full-day
participation of Minister of Labor, Mario Lampiao Sevene,
initiative of the US Ambassador to open the event and call
for greater labor law liberalization to attract foreign
investment and increase employment, and the event's
timeliness. The seminar was held just prior to the GRM's
announcement of a team to review current legislation, set to
be amended and revised by 2005.
LA LIME

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