Cablegate: November Economic Digest: Mozambique

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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1626/01 3551548
ZNR UUUUU ZZH
R 211548Z DEC 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6578
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP 0141
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MAPUTO 001626

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
USDOC FOR RTELCHIN
MCC FOR SGAULL
USAID FOR AFR/SA

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: November Economic Digest: Mozambique

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1. This is a brief summary of significant economic
developments in Mozambique during November 2006. We provide
it as a supplement to our other reporting. The items
discussed are:

-- Macroeconomics: Inflation And Growth Figures

-- CVRD's Moatize Viability Study Under Review

-- Additional Oil and Gas Exploration Concessions Granted

-- Assembly Approves Reduction of General Customs Duties

-- New Stadium to be Built by Chinese

-- Japan Cancels Mozambique's Commercial Debt

Macroeconomics: Inflation and Growth Figures
--------------------------------------------

2. Prime Minister Diogo predicted, in an early December
newspaper interview, that inflation by the end of the would
be "a single digit figure." The GRM target for 2006 was 7.5
percent, but Mozambique is not likely to reduce inflation to
this low level. Inflation in 2005 was higher - initially
reported at 14 percent but earlier this year the government
revised this figure to 11 percent.

3. As for growth, on December 13 Minister of Planning
Cuereneia told the National Assembly that the government
expected the economy to expand at an annual rate of 7.9
percent in 2006. Fourth quarter data had not yet been
gathered, but Cuereneia said that annual export earnings --
at USD 2.3 billion -- were projected to be nine percent
higher than in 2005. Aluminum ingots, electricity and
natural gas account for 70 percent of the country's exports.
Most of the other 30 percent of export earnings comes from
the export of shrimp, tobacco, cotton, sugar and cashew
nuts.

CVRD's Moatize Viability Study Under Review
-------------------------------------------

4. Brazil's Companhia Vale do Rio Doce (CVRD) delivered its
viability study on the Moatize coal basin to the GRM on
November 24. The GRM has sixty days to review it, clarify
questions and suggest changes. Then CVRD staff will present
recommendations to the company's board, which will decide
whether to proceed with the project. Economic Officer and
Econ/Pol Chief met with CVRD's Mozambique Director, Galib
Chaim, on December 5 to discuss status of the project and
potential interest by American investors in a coal-fired
electricity generation plant, one facet of CVRD's planned
operations in and around Moatize. Chaim said that the coal-
fired plant would be approximately 1,500 megawatts in size.
He added that the projected coal export total would amount
to around 12 million tons annually, and that the coal would
be sent via the Sena railroad line to Beira, for loading on
ships there. Should the project go ahead as anticipated,
coal exportation would begin in 2009/2010.

Additional Oil and Gas Exploration Concessions Granted
--------------------------------------------- ----------

5. On November 29 the Mozambican government signed
contracts with three companies -- M-10 Ltd, Sofala Offshore
Ltd, and Zambeze Onshore -- for oil and gas exploration
concessions. All three companies are members of the British
American Natural Gas Group. Each concession contract has a
six-year term and requires the companies to undertake and
interpret seismic studies and conduct exploratory drilling.
Should deposits of oil or gas be found, a concession lasting
25 years would then be possible. The concession blocks are
in the central part of Mozambique - Sofala Offshore's lies
under the bay of Sofala; Zambeze Onshore's is located in an
area straddling the boundary of Zambeze and Sofala
provinces; M-10's concession is further south, off the shore
of Sofala and Inhambane provinces and not far from proven
natural gas fields in northern Inhambane.

MAPUTO 00001626 002.2 OF 002

Assembly Approves Reduction of General Customs Duties
--------------------------------------------- ---------

6. On November 2 the Mozambican Assembly of the Republic
passed the first reading of a bill that will reduce general
customs duties on imports of consumer goods from 25 to 20
percent. Within SADC, member states are already charging a
maximum customs tariff of 20 percent on imports from other
member states. In addition, the Assembly is considering a
second bill that will reduce or eliminate tariffs on certain
imported goods. The purpose of this bill is to encourage
particular industries, promote sporting and musical
activities and protect public health.

New Stadium to be Built by Chinese
----------------------------------

7. In November the Chinese government announced it would
finance the construction of a new national sports stadium
for Mozambique. The stadium, which will be located in a
suburb of Maputo City, will have a capacity of 42,000
spectators. All construction will be financed by China, and
the stadium will be built by a yet-to-be selected Chinese
construction company. Work is scheduled to begin in the
second half of 2007 and should be completed by the end of
2009, in time for the 2010 soccer World Cup in neighboring
South Africa. The Mozambican government hopes that some of
the teams taking part will use the stadium to practice.

Japan Cancels Mozambique's Commercial Debt
------------------------------------------

8. In November Japan announced that it had cancelled all of
Mozambique's commercial debt, an amount worth USD 60
million. This act brings Japan in line with the decision by
creditor countries in 2000/2001 to forgive eligible
commercial debt of the HIPC (heavily indebted poor
countries) nations.

Dudley

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