Cablegate: November 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 02 MAPUTO 001609

SIPDIS
STATE FOR AF/S HTREGER AND EB/TRA
PRETORIA FOR JRIPLEY
JOHANNESBURG FCS FOR RDONOVAN, JVANRENSBURG
USDOC FOR RTELCHIN
MCC FOR SGAULL, TBRIGGS
PASS USAID FOR AA/AFR AND AFR/SA
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: NOVEMBER ECONOMIC WRAP-UP: MOZAMBIQUE

REF: A. MAPUTO 894

B. MAPUTO 712
C. MAPUTO 340
D. MAPUTO 1519
Sensitive but Unclassified Business Confidential Information.
Not for Internet Posting.

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CONTENTS
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Foreign Investment
2.CVRD wins Moatize mine concession
3.Sasol to explore more natural gas fields
Macroeconomics
4. French debt relief under HIPC
Agriculture
5. Cotton production at 80,000 tons in 2004
Business
usiness
6. Buzi Sugar Corporation taken over by Maragra
7. Coke defrauded
8. Mozambican-assembled jeans to be exported under AGOA

1. (U) The Mozambique monthly economic cable is jointly produced
by the Embassy and USAID.

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FOREIGN INVESTMENT
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2. (U) On November 12, the Brazilian mining giant Companhia Vale
do Rio Doce (CVRD) was awarded the Moatize mines exploration
concession (Ref A). CVRD is investing USD 122 million for the
initial phase of development, a feasibility study, scheduled for
18 months. The firm seeks to market 15-16 million tons of coal
per year. Recent studies suggest that the mines possess 2.4
billion tons of coal reserves. CVRD also plans to build a 1500
megawatt coal-fired power station in Tete province close to the
mines. According the country's official news agency, AIM, the
bulk of the coal will be exported primarily to Brazil. As part
of its bid, CVRD agreed to give the GRM five percent of the
shares in the Moatize mining company and make an additional ten
percent available to private investors. It is unclear how CVRD
will choose to move the coal to the coast for export (the mines
are located 250 miles inland). Just this year, Rites and Ircon
(India) was awarded the concession to reconstruct and manage the
Sena railway line for a period of 25 years (Ref B). The line
originates at Moatize and ends at the port of Beira. Use of the
Sena line is a possible option. However, Beira port is
relatively shallow and presently cannot accommodate Cape-size
vessels. Mozambique's only deep-water port, Nacala, roughly
1,000 miles up the coast from Beira, could be used instead as the
export port for Moatize coal; this would entail constructing
about 100 miles of new rail line mostly in Malawi, to connect
with the existing Malawi-Nacala line. Separately, an American
firm, American Commercial Lines International (ACLI), is
interested in developing a barge service to carry coal down the
Zambeze River to an off-shore transfer point near the coastal
town of Chinde. CVRD is expected to start production in 2009.

3. (U) The GRM and Sasol, the giant South African oil and gas
company, will enter into an agreement soon allowing further
exploration of offshore natural gas fields in the central part of
Mozambique. Earlier SASOL found large reserves of natural gas in
the Pande and Temane fields in Inhambane province and began
exporting natural gas to South Africa by pipeline in 2004 (Ref
C). The entire undertaking was estimated at USD 1.2 billion and
is considered one of Mozambique's top two mega-projects (second
only to the MOZAL aluminum investment). Sasol will explore the
offshore sites in partnership with Mozambique's National
Hydrocarbon Company.

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MACROECONOMICS
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4. (U) The government of France further reduced Mozambique's debt
by 21.5 million euros. This is the second debt reduction
agreement signed between France and Mozambique. France is
working to annul the total bilateral debt (in the amount of 444
million euros) owed to it in accordance with the Heavily Indebted
Poor Countries (HIPC) Initiative. Ministry of Planning and
Finance officials state that this cancellation of debt will allow
the GRM to make progress implementing poverty red
uction programs
in Mozambique, the state's number one priority.
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AGRICULTURE
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5. (U) Farmers produced and sold nearly 80,000 tons of raw cotton
to local production factories in the 2003-2004 agricultural
campaign. According to the Mozambican Cotton Institute, another
7,000 tons will be sold to local firms before the end of the
year, making it possible for Mozambique to export 87,000 tons of
cotton in 2004. This is a huge spike from 2003, when only 54,000
tons were sold on the global market.

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BUSINESS
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6. (U) The GRM formally handed over the Buzi Sugar Corporation to
its new owner, Marracuene Sugar (also known as Maragra), which
now owns 100 percent of the old Buzi estate. Maragra intends to
rehabilitate the Buzi factory with new equipment and start
producing alcohol. The rehabilitation and reopening of Buzi is
expected to create a significant number of local jobs,
stimulating the surrounding economy. A Maragra spokesman states
that the company will seek to hire ex-Buzi employees and build a
housing community on the estate. Mozambique's National Sugar
Institute expects the market for sugar to remain soft until the
EU opens its market to developing countries in 2009.

7. (SBU) Several major businesses are reportedly closing their
accounts with Banco Internacional de Mocambique (BIM) and
reopening with Standard Bank due to illegal actions involving
Ministry of Finance officials and BIM employees. In July, Coca-
Cola paid 5-6 billion meticais (roughly USD 250,000) in VAT to
the Ministry of Planning and Finance. After receiving a signed
and stamped receipt from the Ministry, Coca-Cola received a phone
call requesting the same July VAT payment. A Coke contact says
that when the firm declared that it had paid and received the
receipt, the Ministry said it had no record of the payment. Upon
visiting the Ministry of Finance to identify the employee who
processed the receipt, Coca-Cola could not find that person and
the Ministry declared the receipt fake. Several days later the
USD 250,000 was withdrawn from Coke's account, culprit unknown.
Coke repaid the USD 250,000 to the Ministry of Finance. However
Coke, plus many other big firms including Sasol, Mozambique
Electricity, and others, are pulling their accounts from BIM due
to the recurring problems that exist with the bank's shady
operations. The discovery of corruption by Ministry of Finance
officials is not new news, as the press is vocal about claims
that Finance is one of the most corrupt ministries (particularly
the Customs Department) in Mozambique.

8. (U) Econ/poloffs and the President of the U.S.-based Corporate
Council on Africa (CCA) visited Belita, the only garment factory
in Mozambique exporting to the U.S. under AGOA. Belita exports
sweatshirts, t-shirts, and polo shirts to Vanity Fair, Chaps,
FUBU, and Lee. Sales from January to October 2004 totaled
approximately USD 1.4 million, and are expected to reach USD 2.2
million by the end of the year. Belita buys almost all of its
primary material (fabric, labels, zippers) outside of Mozambique.
Belita's parent company, the Palmar Group, located in Mauritius,
handles all marketing, communication, and logistics for the sale
of Mozambican-produced garments. In January 2005, Belita expects
to open a jeans-production plant in Maputo. Belita will source
all denim from Southern Africa. Over 1,000 staff will be
employed, and Belita's AGOA sales to the U.S. are expected to
increase (Ref D).
LA LIME

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