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Cablegate: The Shire-Zambezi Waterway: God's Highway or Bingu's

VZCZCXRO3915
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0914/01 2920945
ZNR UUUUU ZZH
R 190945Z OCT 06
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 3404
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHDC
RUEATRS/DEPT OF TREASURY WASHDC 0472
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 LILONGWE 000914

SIPDIS

STATE FOR AF/S, AF/EPS, INR/AA
USAID FOR AFR/SA
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA
PRETORIA FOR USTDA

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID EWWT ELTN KMCA PGOV MI
SUBJECT: The Shire-Zambezi Waterway: God's Highway or Bingu's
Folly?


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1. (U) Summary: President Bingu wa Mutharika is strongly pushing the
idea of re-opening the Shire and Zambezi rivers to commercial
navigation, to help address Malawi's serious problem of limited and
expensive transportation links to global markets. A recent
EU-funded pre-feasibility study offers possible options for use of
the waterway, but also raises serious doubts about its economic
viability. The scheme is highly political, and not without
controversy in Malawi. It is unclear whether the project would
actually attract paying customers. End summary.

Malawi's Transport Problem
--------------------------

2. (U) Soon after taking office in 2004, President Mutharika began
to promote the idea of re-opening a water route from Malawi to the
Indian Ocean, as an alternative transportation corridor to access
global markets. High transportation costs are Malawi's single
biggest investment constraint, and the number-one complaint of both
importers and exporters. Transportation adds at least fifty percent
to the cost of most imports, and for exporters, Malawi's advantage
as a low-cost producer is offset by the very high expense of getting
goods out of the country. President Mutharika's economic growth
plan centers around stimulating exports, but that will remain a
distant goal if Malawi cannot improve its transportation links.

3. (U) Malawi's two former rail links to the outside world were
destroyed in the Mozambican civil war, and only one line-- the
Nacala Corridor-- has recently begun to operate again at limited
capacity. The vast majority of the country's goods move by truck to
and from the ports of Beira, Durban and Dar es Salaam. While highly
flexible and reliable, trucking is the most costly transport option,
and recent world oil price increases have made it even more so. The
country's limited trucking fleet cannot cope with the seasonal
demands of large agricultural exporters such as the tobacco
industry, and shippers often complain of delays because not enough
trucks are available during peak times. The shortage of trucks,
along with regulation that protects local truckers from foreign
competition, combine to give Malawi the highest transportation costs
in the southern African region.

A Natural Route
---------------

4. (U) President Mutharika's answer to this problem is the
Shire-Zambezi Waterway, a route by which export goods would move
from the town of Nsanje in far southern Malawi down the Shire River
into Mozambique, then into the Zambezi River and down to the Indian
Ocean. The distance from Nsanje to the mouth of the Zambezi at
Chinde, Mozambique is 325 kilometers, making the waterway Malawi's
closest connection to the Indian Ocean.

5. (U) British explorer and missionary David Livingstone used the
Shire-Zambezi route on his explorations of the region in the 1850s,
calling it "God's Highway into Africa." In the early 20th century,
British colonials plied the route with shallow-draft paddle steamers
which remained in operation until the 1950s. Up to the late 1980s,
small barges were used to export molasses from a large
government-owned sugar estate in southern Malawi. Like many of
Malawi's ailing parastatal companies, that estate virtually
collapsed in the early 1990s, and the river shipments ceased. The
estate was later privatized and sold to South African sugar giant
Illovo, which today ships its product by road and rail.

An Intriguing Idea, but Many Problems
-------------------------------------

6. (U) A recently released pre-feasibility study funded by the
European Union expresses some serious reservations about the project
and calls for more extensive research, but recommends two possible
options for use of the waterway. The more modest of the two options
advocates the use of pontoon barges that could carry up to sixty
20-foot containers between Nsanje and Chinde, at the mouth of the
Zambezi on the Indian Ocean. This option would require construction
of a small port at Chinde so that containers could be transferred
from the pontoons to larger ships that would carry the cargo to
Beira or Durban. Dredging would be required at certain points in
the Shire and near the Zambezi mouth in order to make the route
passable. The estimated startup cost for this option is
approximately US$17 million.

7. (U) The second option recommends the use of larger coastal
vessels that could carry 150 containers through the waterway and
down the Indian Ocean coast all the way to Beira, which lies

LILONGWE 00000914 002.2 OF 003


approximately 200 km south of the Zambezi mouth. From Beira the
cargo would be transferred to larger vessels that would carry it to
Durban. This option would require US$36 million to start, in
addition to several million dollars annually of dredging to keep the
channel navigable for the larger vessels.

8. (U) Both scenarios present some significant administrative and
logistical problems. Since most of the waterway lies within
Mozambique, that government's cooperation in the project is
essential. Aside from the construction of a port at Chinde for the
first option, both options envision significant dredging operations
and ongoing administration of the waterway. Although Malawian
officials have discussed the plan with their Mozambican
counterparts, the latter have not strongly endorsed the idea. On
the contrary, Mozambican officials appear to be much more interested
in promoting rail and road corridors, in particular the Sena rail
line that runs from the Moatize coal fields near Malawi's southern
border down to the port of Beira.

9. (U) Another problem is the isolation of Nsanje, the tiny town
that would serve as the northern terminus of the waterway. Nsanje
lies about three hours south by road from Malawi's commercial
capital Blantyre. About 100 km of that road is rough unpaved
surface, and would require upgrading to handle cargo to and from the
Nsanje port. The rail link with Nsanje was cut several years ago
after a flood that shifted the course of the Shire River and washed
away large sections of track. Much of the line has not been used
since the late 1990s, and over 60 km would require rehabilitation.
The entire Lower Shire Valley area north of Nsanje is prone to
significant flooding every rainy season, and the town is sometimes
cut off from the rest of the country. On top of that, the Shire
River is prone to significant variations in water level, due to
seismic activity in Lake Malawi, which sits directly in the East
African Great Rift Valley. During one period in the 1920s the river
level dropped precipitously and the Shire actually dried up in
various locations for a period of several years. While unusual,
such an event cannot be ruled out in the future.

10. (U) In addition to Mother Nature's challenges, there are also
man-made difficulties. Malawi has suffered serious deforestation in
the past 15 years, and the resulting siltation of its rivers,
including the Shire, will likely require ever-increasing amounts of
dredging to keep navigation channels open. Local agricultural
experts often remark that Malawi's largest export is its soil, much
of which is washing down the Shire. That problem is not likely to
improve soon.

11. (U) Finally, the inter-modal concept of the scheme, in which
cargo would be containerized and moved by road or rail to Nsanje for
transfer to watercraft, will be naturally more expensive and prone
to delay than single-mode transport such as rail or truck.

Full Steam Ahead, Despite Doubts
--------------------------------

12. (U) Despite these clear drawbacks, President Mutharika is
determined to forge ahead with the project. In October 2005 he held
a groundbreaking ceremony at Nsanje and ordered the initial
excavation of three large pits next to the river that may eventually
serve as berths for river craft (photos of the site may be seen on
the Mission Lilongwe State/USAID intranet website at
http://web.lilongwe.state.gov/shirezambezi.ht m). Since that time,
Mutharika has mentioned the waterway in virtually every public
speech, no matter what the occasion. The GOM held a "sensitization"
workshop in June, and has promised to organize a donor conference to
solicit aid for the project.

13. (U) Mutharika is working hard to sell the idea to his African
colleagues, having presented a concept paper to an African Union
forum in April 2005, and also to NEPAD for inclusion in its
Framework for Sustainable Regional Development. Mutharika last week
took visiting AU Chairman Konare by helicopter to Nsanje to visit
the site of the port. The president pitched the project to the
Japanese government during an official visit to Tokyo earlier this
year, and he has garnered limited financial support from the EU to
study the idea. At this point no other donors have shown interest.
The GOM hopes to attract private investment as well, but the
business community is taking a wait-and-see attitude.

14. (U) The project has generated some controversy. Earlier this
month civil society organizations, the media and some politicians
sharply criticized Mutharika for diverting funds to the waterway
project that had been previously earmarked for construction of a

LILONGWE 00000914 003.2 OF 003


road in the northern region. Mutharika faces an uphill battle
convincing the public to invest Malawi's limited resources on a
project of uncertain value such as the waterway, compared to the
paving of a road which has a clear and immediate benefit.

If He Builds It, Will They Come?
--------------------------------

15. (U) Even if Mutharika secures the necessary donor funding for
this project (very much an open question), the GOM runs the risk of
creating a white elephant. Government statements since the release
of the pre-feasibility study have glossed over the significant
reservations raised in the report, which is peppered with
expressions of doubt about the project's viability. The
introduction says that "freight rates necessary for a sustainable
development of a dedicated shipping venture would tend to be
unattractive to potential clients in comparison to present-day
trucking." The report quotes a 2004 study by an American consulting
firm that "river transportation for Malawi traffic of sugar, tobacco
and cotton in any reasonable quantity would be considered less
attractive than either rail or road transportation... river
transportation is likely to be uncompetitive."

16. (U) The waterway will face direct competition from a project to
rehabilitate the Sena railway line in Mozambique, which runs from
near Malawi's southern border down to the port of Beira. The Sena
line is currently being renovated by an Indian consortium with
funding from the World Bank, and the project will also have private
sector investment from Brazilian mining firm CVRD, which will use
the line to move coal from its concession at Moatize near Tete in
northwestern Mozambique. It would be a fairly straightforward
project to extend the Sena line into Malawi, giving the country a
direct rail link to Beira that would be faster and cheaper than the
waterway.

17. (U) It appears that the GOM has not surveyed the local market to
determine who might actually use the waterway. Most business people
with whom we have spoken have a vague awareness of the project, but
are decidedly skeptical about the government's ability to deliver.
A recent visit with managers of the Illovo sugar estate north of
Nsanje (the project's largest potential customer) revealed that no
one from the government has approached the company about using the
waterway. Illovo is interested in the project, but would prefer to
use the Sena line to ship directly to Beira by rail, if that
extension were built. The waterway will face a tough challenge in
convincing shippers to change their current modes of transport. The
American-owned operators of the Nacala Corridor rail line, Central
East Africa Railways, have struggled to gain new customers because
of fears over reliability, even though the cost of shipping by rail
is less than by truck.

18. (SBU) The Shire-Zambezi Waterway is clearly a project that is
close to President Mutharika's heart, and he sees it as an important
legacy of his presidency. Like many of his other reforms, Mutharika
is promoting the resurrection of the waterway as a return to what
worked in the past, during Malawi's perceived era of prosperity and
efficiency. Mutharika may succeed in realizing his dream of
rebuilding "God's Highway," but the reality of the market will
decide if his investment will pay off.

EASTHAM

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