US embassy cable - 04MAPUTO30

UNCLAS SECTION 01 OF 03 MAPUTO 000030 
 
SIPDIS 
STATE FOR AF/S 
USDOC FOR JDIEMOND 
JOHANNESBURG FOR BNUELING 
SENSITIVE 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest 
SUBJECT: DECEMBER MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE 
 
REF: MAPUTO 01757 
 
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FOREIGN INVESTMENT 
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1. (U) In December, KPMG Mozambique announced the "Top 100 
Businesses in Mozambique" for 2002. The list was topped by 
Mozal, the large South African-owned aluminum smelter, 
generating the highest revenues for a firm in-country 
(foreign or nationally-owned) in 2002. Six US companies 
ranked in the Top 100. In descending order of generated 
revenue, these companies include: Coca-Cola, Mobil, Mobeira 
(owned by US corporation Seaboard), Avis Rent-a-Car, Colgate- 
Palmolive, and KPMG (REFTEL). 
 
2. (SBU) The three consortia bidding on the Sena railway 
tender, Rites and Icon (India), Yenwin and CIRC (China), and 
the Beira Corridor Company (Zimbabwe/South Africa), should 
expect an award in the beginning of 2004. Contacts from the 
Zambeze River Valley Authority indicate that the award will 
most likely go to the Chinese consortium, as it was valued 
as the most affordable bid. CFM, the Mozambican Ports and 
Railways Company, has made its recommendation to the 
Economic Council of Ministers and the decision now sits with 
the GRM. The company awarded this contract will be 
responsible for rehabilitating the Sena Line (destroyed 
during the civil war) that travels from the lucrative 
Moatize coalmines to the port of Beira. (COMMENT: At the 
same time, there is a US company interested in launching a 
feasibility study on the Zambeze River to explore an 
alternative to exporting coal from Moatize to the coast via 
rail. The US firm visited Mozambique in December and met 
with various stakeholders, including the GRM. Despite new 
economic arguments, rehabilitation of the Sena line seems to 
be a political decision and it does not seem likely the GRM 
will endorse the barging option. However, in discussions 
with the World Bank, this organization has indicated they 
will not finance any project that is not economically sound, 
possibly leading the GRM to reconsider a barge option. END 
COMMENT). 
 
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MACROECONOMICS 
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3. (U) As reported by the daily newspaper, "Noticias", the 
Prime Minister told the Parliament that the GRM is planning 
on eight percent growth in the country's GDP for 2004. 
Introducing the country's Economic and Social Plan for the 
year, he predicted growth in all sectors of the economy, 
with mining and manufacturing being the highest-growth 
sectors. The only sector where growth will most likely be 
negative is in construction. This is a result of the 
completion of two gigantic projects in 2003, phase 2 of 
MOZAL and the natural gas pipeline constructed by SASOL. As 
for the 2003 estimates, the PM Mocumbi said GDP had grown by 
about seven percent. Inflation figures rounded out at eleven 
percent for the year, considerably higher than the GRM had 
hoped. Much of this inflation is attributed to the higher 
prices consumers have to pay for South African goods with a 
strongly valued rand. 
 
4. (U) The Governor of the Central Bank gave his review of 
the 2003 economy and forecasts for 2004. He noted that 
Mozambique's economy remains heavily dependent on imports, 
notably food products from South Africa. The Bank's 
estimates indicate that the inflation rate will be above 
10.8% for 2003. Like the PM, the Governor attributes the 
higher inflation in 2003 to the strengthening of the rand 
(and the economy's dependence on South African products), as 
well as to a decline in the supply of goods due to the 
drought and an increase in tariffs for water, electricity, 
and telephones. For 2004,the Bank forecasts an "8 percent 
economic growth and a 9 percent inflation rate". 
Accordingly, it estimates a 16 percent increase in monetary 
expansion and a 12 percent increase in credit to the 
economy. 
 
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TELECOMMUNICATIONS 
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5. (U) Vodacom officially launched cellular services in 
Mozambique in December, opening the industry to competition 
for the first time. Until now, government-owned Mcel served 
as the sole cellular service provider. Vodacom plans an 
initial investment of $260 million in Mozambique. As a guest 
speaker at the formal launching ceremony, President Chissano 
highlighted the importance of rapid access to information. 
The introduction of an additional cellular service provider 
should reduce transaction costs, increase the quality of 
cellular products and services, expand the network of 
communications, and allow more choices for the consumer. 
Chissano welcomed further cellular companies interested in 
entering the Mozambican market, saying the country would 
keep its doors open to increased competition and investment. 
In its opening phase of operations, Vodacom Mozambique will 
cover six locations: Maputo/Matola, Xai-Xai, Bilene, Nampula 
and the roads from Maputo to Swaziland and Maputo to South 
Africa. For the first time, customers will be able to pre- 
pay for roaming, allowing use of their cell phones from 
South Africa to Mozambique. Vodacom Mozambique Executive 
Director announced that Vodacom would capture 45% of the 
Mozambican market in less than three years. Quoted by a 
local news source, he believes that the quality of customer 
care and efficiency of network service provided by Vodacom 
will attract the target audience. Vodacom also operates in 
South Africa, Lesotho, Tanzania, and the DRC. Mcel is 
fighting the competition by offering perks for current 
customers, including a number of free text messages and 
better contract deals, and has begun lowering international 
rates. It is estimated that Mcel has 400,000 clients, 
saturating the market. Vodacom has undertaken an aggressive 
promotional campaign, including advertising and opening of 
new stores. 
 
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AVIATION 
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6. (U) The Mozambican Aeronautics Company (IAM), 
responsible for the repair and maintenance of planes, has 
declared bankruptcy, citing the lack of a local market for 
its services. Seventy percent of IAM's shares are held by 
the Portuguese group OGMA, while the Mozambican light 
aircraft company, TTA, holds the remaining thirty percent. 
Speaking to the press, a lawyer for the firm noted, "During 
the last two to three years we did not repair a single 
plane." He went on to say that most planes operating in 
Mozambique are repaired in South Africa. 
 
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ENERGY 
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7. (U) The African Development Fund (ADF) approved a $12.9 
million loan and a grant of $2.81 million to finance an 
Energy Access Reform Program in Mozambique. This program 
plans to expand the electric network, specifically to rural 
areas. With the participation of the private sector, the 
program will provide electricity to 400,000 people by 2007; 
300 schools and health centers in the project area would 
have access to solar energy. The program also includes a 
reform of the electric power sector, installation of 
electrification systems, promotion of renewable sources of 
energy, and auditing services. These projects will be 
financed by the ADF, the World Bank, World Fund for the 
Environment, Nordic Development Fund, and the GRM at a total 
cost of approximately $80 million. 
 
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LABOR 
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8. (SBU) The Economic and Social Council of Ministers 
passed a new labor decree this month that will fare worse 
for employment of foreign labor. Private sector groups have 
argued that the new decree will hamper investment by keeping 
restrictive labor policies in place. After eighteen months 
of solid negotiation and weekly meetings with private sector 
employers, the Ministry of Labor reneged on its promise to 
create a decree allowing for 10% of a firm's workforce to be 
contracted internationally. Private sector organizations are 
furious about the passage of this decree and are making 
pleas to the Prime Minister not to sign the legislation. If 
endorsed by the PM, the labor decree could stifle the 
private sector's ability to contract skilled labor and bring 
in the necessary technological know-how to operate modern 
firms. As the situation stands, there is a dearth of 
technically qualified workers locally and firms must be able 
to have the flexibility to choose a percentage of their 
workforce based on varying skill levels. Private sector 
organizations are pleading with the GRM to scrap the new 
decree and leave the 1999 decree in place, despite that 
decree's many shortcomings. (Comment: As of January 8, 
2004, the PM had not endorsed the decree. Private sector 
umbrella group CTA is currently engaged in negotiations with 
the Ministers of Labor, Planning & Finance, and Industry & 
Commerce to modify the decree and make it friendlier to the 
business community. End comment.) 
 
9. (U) Luisa Diogo, Minister of Planning and Finance, 
announced that the government is doing its "utmost" to 
ensure that all state employees receive their monthly wages 
on time, according to the Mozambican News Agency, AIM. Diogo 
said her Ministry has tried to identify reasons for recent 
delays in payments to public sector employees. According to 
the Ministry, reasons ranged from theft of wages, to 
"irresponsible" behavior, to the absence of banks. This 
month, the 100 year old system of using "bank titles" to pay 
out wages was replaced with direct, computerized payments 
from the Ministry of Finance to the beneficiary 
institutions. Diogo admitted there have been some "hiccups" 
with implementing the new system, but that things should run 
smoothly starting with payment of December wages. 
 
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OIL AND GAS 
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10. (U) The oil terminal at the Port of Beira is operating 
far below its level of capacity, reports the local 
newspaper, "O Autarca". The terminal is prepared to receive 
large ships with up to 50,000 tons of oil, but there is a 
critical problem of blocked access to the channel due to 
heavy sedimentation and the need for further dredging. 
Currently, the port can only receive ships with a maximum of 
30,000 tons of oil. Constructed in 1994, the Beira Port Oil 
Terminal is considered one of the most modern in the 
Southern African Region. CFM, the Mozambican Ports and 
Railways Company that manages the port, earns $1.8 for every 
cubic meter of oil brought into port. This year, 1,000,000 
tons was planned. However, according to numbers released in 
September, the port had only achieved the importation of 52% 
of this planned amount. The discrepancy in figures may be 
due to the inability of ships to enter Beira with large 
amounts of petroleum as intended. 
HANKINS