Cablegate: June 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

REF: A. MAPUTO 00877 B. MAPUTO 00712 C. MAPUTO 00744
Sensitive But Unclassified - Protect Accordingly

(U) The Millennium Challenge Corporation (MCC) visited
Mozambique and spoke with key GRM officials to introduce the
MCA program (Ref A). The group stressed the importance of
formulating proposals that accelerate growth and reduce
poverty. Calling themselves "development investors", the
group stated that while proposals must have measurable
results, there is no timetable or format for proposal
submission and that it is not likely the MCC will fund
projects in all sixteen MCA-eligible countries. Currently,
the GRM has put together a high-level drafting group that
will submit proposals to the MCC. This group consists of
ministers from Industry and Commerce, Planning and Finance
(who currently also serves as the Prime Minister), Health,
Public Works, and Transportation. A larger, technical
drafting group to serve under the high-level body has also
been named. This group consists of national directors of
several ministries, private sector representation through
CTA (Confederation of Mozambican Economic Associations), and
civil society representation through Cruzeiro do Sul. The
MCC immediately has $1 billion to invest in development
projects across the sixteen countries. They are expecting to
receive an additional $1.5 billion to invest in FY05.
(U) The Arab Bank for Economic Development in Africa (BADEA)
signed two agreements for a total of $20 million in
financing for the rehabilitation of roads in the city of
Maputo and the stretch from Chissano-Chibuto in Gaza
Province. Longtime partners with the GRM, BADEA guaranteed
the Ministry of Planning and Finance $10 million directly
from BADEA and $10 million from a BADEA-contracted partner.
An unspecified amount of the financing comes in the form of
a donation.
(U) On June 1, the 900-kilometer natural gas pipeline that
runs from Inhambane, Mozambique to Secunda, South Africa,
was inaugurated. Mozambican President Joaquim Chissano,
President Mbeki of South Africa, and Mtswati III, King of
Swaziland attended the formal inauguration along with
several ambassadors, including the U.S. Ambassador to
Mozambique. Total investment for pipeline construction and
installation reached $1.2 million, financed by Mozambican
and South African entities - the National Hydrocarbon Firm
(Mozambique) and SASOL (South Africa). The pipeline
originates in Inhambane and passes through the provinces of
Gaza and Maputo before reaching Secunda, South Africa.
Discovery of natural gas in the Pande and Temane fields
(Inhambane) occurred in 1962 after several studies were
conducted, but the following years of colonial and civil war
hampered any investment. Currently, gas is exported to South
Africa via the pipeline; however, several studies are being
conducted to see if gas runoff may be used to benefit
Mozambique. A public-private partnership is providing energy
via the pipeline to Vilankulos, Inhassoro, and Nova Mambone
(Inhambane) and Machanga (Sofala). Tourists on the island of
Bazaruto and Magaruque also benefit from Temane gas
(U) Following a series of delays, Kenmare Resources of
Ireland signed an agreement with three European and two
African financial institutions to obtain $269 million in
financing to construct a heavy sands production factory in
the northern province of Nampula. The five financial
institutions are: European Investment Bank (BEI), German
Development Bank (KFW), Dutch Development Bank (FMO),
African Development Bank (ADB), and South African bank,
ABSA. According to Noticias daily news, Kenmare hopes to
begin construction within the next four months, although the
project requires an extra $42 million in financing. The
financed amount will be paid back over a period of 15 years.
Sources say that up to 425 people will be employed, only 10%
of which will be foreign laborers. Up to 619,000 tons of
ilmenite, 55,000 tons of zircon, and 18,000 tons of rutile
will be produced annually in the Moma heavy sands project.
Generally, these resources contribute to the production of
paint, ceramics, material used in aviation and medical
(U) Vodacom Mocambique, a subsidiary of Vodacom South Africa
that provides mobile cellular service, has reached over
100,000 customers in Mozambique since its inception in the
market in December 2003. Vodacom Mocambique believes that
the key to its success lies in the range of products
offered, including prepaid cellular minutes with no airtime
window, prepaid roaming to South Africa, and free "Please
call me" messages. The company is in competition with Mcel,
the previously sole national cellular phone company, which
is racing to offer new promotional packages to keep current
customers. Vodacom is the only firm to offer bundled minutes
with contract packages so that Mozambican customers can send
messages to over 600 GSM cellular networks worldwide.
Vodacom Mocambique began coverage in Maputo, Vilanculos, and
Matola. It has now expanded to cover Pemba, Beira, Nacala,
and Nampula and the corridors between Maputo and South
Africa, Swaziland, Xai-Xai and Beira to Zimbabwe.

(U) The Ministry of Tourism has pre-selected four tourism
operators to work in Limpopo National Park, located in the
southern province of Gaza. The Ministry will award a
contract shortly so tourism operation may begin before 2005.
In addition to launching tourism in the park, other
activities will commence simultaneously to resettle peasant
farmers living in the Shinguedzi river basin, an area
currently reserved for park operations. Approximately 2,000
wild animals have been introduced into the park from South
Africa as part of the restocking plan. Minister of Tourism,
Fernando Sumbana, would like to create routes so that
tourists may start visiting the area, bringing in money to
further develop the park's infrastructure, assure park
sustainability, and benefit the surrounding communities.

(SBU) Two representatives from the World Bank (WB) Transport
Group, Washington, DC paid a visit to Embassy officers. WB
representatives are on a two-week visit to Maputo to carry
out a review of negotiations between the GRM (Ministry of
Transportation) and Indian company Rites and Ircon, the
chosen developer of the Sena Railway Line. The WB will
provide Rites and Ircon a $100 million soft loan to
reconstruct the Sena Line. Loan approval is estimated to
take place in August. According to the WB, the main
justification for rehabilitating the 600 km Sena Line is to
restore a railway line that used to carry up to about 2
million tons of goods during its past operation, at an
average cost of about $200,000 per km (total cost of nearly
$120 million). The expected economic rate of return is 18%,
as presented in an economic report by ECORYS, but it is
believed to be commercially viable only as a public-private
partnership where IDA funds ($104.5 million) are on-lent to
the private sector (25 year concession) at a concessionary
rate and the private sector is investing $35 million
(including the rolling stock and investments in the
Machipanda/Zimbabwe Line). Additionally, the WB made clear
that the concession for the Moatize coalmines, the ultimate
target for export, is completely separate from the rail
concession. Barge transport would be considered as a
technically viable alternative for the transport of coal
when, and if, it does materialize from the Moatize coalmines
if successfully concessioned (not expected for another eight
years or so), and where tonnage would be expected to be in
the order of 6-10 million/year. Quoting WB sources, "The
existence of the Sena Line would therefore not preclude
consideration of the barge transport as an alternative,
which could well present a competitive alternative to be
considered by the private sector." According to the WB,
Minister of Transportation Salomao, has extended an
invitation to the U.S. firm seeking investment in Zambeze
River barging, ACLI, to conduct a Zambeze River Survey. This
effort was ignored and most likely blocked in the past, due
to the fear that barging would derail plans for
reconstruction of the Sena Line (REF B).

(U) Stating that Mozambique must expand access to energy to
encourage development, Nazario Meguigy, director of the
Project Technical Implementation Unit (UTIP), reopened
debate on construction of the Mphanda Nkhuwa Dam. According
to local news sources, Meguigy warned that Mozambique runs
the risk of losing large industrial projects if it does not
accelerate negotiations for dam and power plant
construction, which began in August of last year. Mphanda
Nkhuwa would be located on the Zambeze River, southeast of
the country's largest energy-producing dam, Cahora Bassa.
Because the majority of energy generated from Cahora Bassa
is soaked up by South Africa, it does not provide
significant development opportunities for Mozambique.
Meguigy supports development of a second dam because it
would create infrastructure, employment, stimulate economic
growth, and raise the standard of living for Mozambicans in
the surrounding area. Up until this point, the UTIP has only
solicited large construction firms and financial
institutions that may be interested to invest. At the same
time, reopening this debate has incited many
environmentalists to argue against dam construction, saying
that dams worsen the quality of life for surrounding
citizens rather than improving them.

(U) The Luabo sugar mill, located in Zambezia, may soon be
rehabilitated if the GRM and Mauritius successfully conclude
negotiations. Rehabilitation of Luabo is estimated to cost
between $60-80 million and will produce sugar, rice, and
raise cattle (as part of the Luabo complex). Currently,
there are four sugar factories operating in Mozambique,
employing over 17,000 workers. Launched in May, the 2004
agricultural campaign is expected to produce around 253,000
tons of sugar, representing a 20% increase in production
from last year.
(U) The current agricultural campaign is estimated to
produce over two million tons of staple crops in 2004, a
target set by the National Agricultural Development Program,
PROAGRI. Production of grain and vegetables is up by ten
percent and root crops up by five percent in 2004. Vice-
Minister of Agriculture, Joao Carrilho, stated that
marketing of agricultural products must be improved,
implying greater access to micro-credit and existence of
banking institutions in rural areas. In Mozambique,
approximately 30 micro-credit institutions (all in urban
areas) serve 52,000 customers and lend the equivalent of $8
million. One of the Ministry's challenges, according to the
vice minister, is to attract savings held in rural areas
where farmers keep their money at home due to the lack of
rural financial institutions. Regarding this issue, Deputy
Governor of the Bank of Mozambique, Ernesto Gove, promised
that rural savings and finance will gain new momentum with
the implementation of a new law, recently approved by the
Parliament, which calls for extension of micro-credit to
rural areas.
(U) The National Prices and Wages Commission published the
new price for raw cotton under the 2004 agricultural
campaign on June 2. Companies must pay producers a minimum
of 5,000 meticais (US$0.20)/kilo for first-class cotton.
This amount is a 30% increase in the price from the previous
year. The decision was made by the Commission in order to
resolve a deadlock in negotiations between peasant producers
and buying companies that took place in Nampula, the
country's largest cotton-growing region, in recent months.
The recent recovery of world cotton prices has significantly
helped the situation of local producers.

(SBU) The Minister of Labor, Mario Lampiao Sevene, is
individually calling in donors (including the USG) to
present his plan and timetable for revision of the labor
law, expected in 2005. In a recent meeting with the U.S.
Ambassador to Mozambique, Sevene made clear intentions for
the Ministry of Labor to head labor law revision, as opposed
to the Technical Law Revision Unit (UTREL), which is
generally the lead on drafting technical legal matters (REF
C). For many private sector groups and donors who call for
greater labor law liberalization, it is worrisome that the
Ministry will seek to lead this revision, as many see a
greater chance for overhaul and liberalization to be
achieved under UTREL as opposed to the Ministry.

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