US embassy cable - 04MAPUTO505

UNCLAS SECTION 01 OF 03 MAPUTO 000505 
 
SIPDIS 
STATE FOR AF/S 
PRETORIA FOR JRIPLEY 
JOHANNESBURG FOR RLO - BNUELING, FCS - WCENTER 
USDOC FOR AHILIGAS 
SENSITIVE 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest, Electricity 
SUBJECT: MARCH MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE 
 
REF: MAPUTO 00455 
 
Sensitive But Unclassified - Protect Accordingly 
 
----------------------- 
FOREIGN INVESTMENT 
---------------------- 
1. (U) Mineral Resources Survey: The GRM signed an agreement 
with a South African firm, Fugro Airborne Surveys, to 
undertake aerial surveys in the northern and central 
provinces of Zambezia, Tete, Niassa, and Cabo Delgado, as 
reported by Noticias, the daily newspaper. The objective of 
the surveys is to collect information on the country's 
geological potential. Fugro will overfly the area using low- 
level remote sensing technology to detect geological pulses. 
Similar surveys have already been completed in Mozambique's 
southern provinces. Total investment in the project is 
around $33 million, co-financed by the World Bank, the 
African Development Bank, the Nordic Development Fund, the 
South African Government, and the GRM. The new survey 
should be completed by March 2005 and final results of the 
country's geological mapping are expected by late 2006. 
Mining of precious stones is already underway in Niassa 
where Tanzanians are involved in mine exploration. 
 
------------------ 
MACROECONOMICS 
------------------ 
2. (U) World Band/IMF Joint Staff Assessment: A team from 
the World Bank and the IMF simultaneously conducted the 
annual Joint Staff Assessment (JSA) of Mozambique's progress 
in implementing the GRM's Action Plan for the Reduction of 
Absolute Poverty (PARPA). The JSA concluded that performance 
is "satisfactory". The IMF and the GRM negotiated terms for 
a new Poverty Reduction and Growth Facility [PRGF] 
arrangement and general agreement was reached; yet some 
details remain to be worked out. The new PRGF will support 
Mozambique's quest for poverty reduction, economic growth 
and stability. The PRGF is designed to maintain monetary 
and fiscal discipline while allowing Mozambique to continue 
its rapid GDP growth path with a comfortable external sector 
situation (REFTEL). 
 
3. (U) Poverty Review: Recently reported results from the 
2002/3 Household Survey, completed by the National 
Statistics Institute (INE), indicate that the poverty 
incidence in Mozambique has dropped to 54.1% in 2003, down 
from 70% in 1997. These numbers demonstrate that Mozambique 
is surpassing its poverty reduction targets as benchmarked 
by the GRM's Action Plan for the Reduction of Absolute 
Poverty (PARPA), which estimated poverty to drop to 60% by 
2005. Revealing the results in front of Parliament, Prime 
Minister and Minister of Planning and Finance, Luisa Diogo, 
said these numbers and recent demography and health surveys 
also undertaken by INE indicate that Mozambique is "on the 
right path". According to Diogo, the "fundamental 
instrument" for poverty reduction is education and since 
1999, expansion in primary and secondary education has 
vastly surpassed PARPA targets. Based on survey results, 
illiteracy has fallen from 60.5% in 1997 to 53.6% in 2003. 
The Minister presented a further challenge before 
Parliament, saying "We hope to cut the illiteracy rate to 
50% this year (2004)". In health care statistics, the 
building of new rural hospitals and health units contributed 
to a rise in the number of people who could reach a health 
care center in less than an hour, from 40% in 1997 to 54% in 
2003. The expanded vaccination program for childbearing 
women and children and an insecticide approach to preventing 
malaria has contributed to significant health gains. 
Additionally, the GRM has been active in the struggle 
against HIV/AIDS as 43 VCT centers were opened in 2003 and 
more than 200,000 patients used counseling and testing 
services. 
 
--------------------------- 
PORTS, ROADS, AND RAILWAYS 
--------------------------- 
4. (SBU) Sena Line: The US-Mozambique Chamber of Commerce 
hosted a lunch with guest speaker Minister of Transportation 
Tomas Salomao this month. Salamao's speech to the business 
audience focused on reconstruction of the Sena Railway Line, 
a top GRM initiative and major infrastructure project, 
valued at $100 million. The Minister emphasized that 
rehabilitation of the line is important for development of 
the Zambeze River Valley and valuable to resource 
exploration and exportation opportunities in the area, 
namely of coal and sugar. Salomao admitted that the project 
would take time once the tender is awarded, estimating three 
and a half years for full completion. The GRM received three 
bids on line reconstruction in January 2004. The candidates 
have been scaled down to two, a Chinese and an Indian firm. 
The GRM's plan is to award the project and appeal to the 
World Bank for project financing. There continues to be US 
interest in exploring the possibility of barging down the 
Zambeze River, achieving coal exportation differently. This 
interest is meeting heavy GRM resistance, as the Sena line 
is a highly political issue that will go forward regardless 
of its economic viability, unless, of course, the World Bank 
refuses financing. 
 
--------- 
TOURISM 
--------- 
5. (U) New Tourism Law: The Mozambican Parliament passed the 
first reading of a bill to regulate the tourism industry. 
Tourism Minister and former businessman, Fernando Sumbana, 
described tourism as a sector "responsible for rapid 
economic and social development" and a "fundamental 
instrument in the struggle for poverty reduction". A visibly 
growing industry in Mozambique, tourism is becoming more and 
more important to the national economy by attracting foreign 
investment, creating employment, and developing local 
infrastructure. The current bill intends to ensure that 
Mozambique's tourism potential is used in a rational and 
sustainable manner. It requires that tourist operators fix 
prices in the local currency (most prices are currently 
quoted in US dollars), properly insure resorts, and make 
provisions for disabled tourists. Additionally, it allows 
for tourists to formally lodge complaints and requires that 
operators answer in a timely and appropriate manner. The GRM 
will charge fees for licensing tourist activities, but the 
details of this levy are not yet available. 
 
6. (SBU) COMMENT: The GRM is putting significant effort into 
creating an environment for tourism growth and development, 
as they see tourism growth as a key to reducing absolute 
poverty in line with the PARPA. USAID is in the process of 
creating a six-year strategy for tourism development in 
Mozambique and has reviewed tourism destinations in the 
north, central, and southern regions. In meetings with 
Minister Sumbana, there seems to be agreement that the North 
is a good environment for USAID tourism investment because 
of the range of possible tourist destinations (Lake Niassa, 
the Niassa Reserve, Ilha de Mozambique, Nacala, Pemba, the 
Quirimbas, and Ibo Island) and the relatively free and 
unpoliticized regulatory environment. Large challenges 
remain for tourism attraction in Mozambique: poor 
infrastructure, a single air carrier, crime, the expense of 
reaching tourist destinations, and for operators, lack of 
clear land titles and skilled labor. END COMMENT. 
 
-------- 
ENERGY 
-------- 
7. (U) Portuguese-Mozambican Talks on Dam Dispute: The Prime 
Minister of Portugal, Durao Barroso, made an official visit 
to Mozambique in March. One of the prime discussion pieces 
during this visit was the question of Cahora Bassa Dam 
ownership. The GRM, as stated by President Chissano on March 
29, would like to obtain control over the dam. In the 
current arrangement, Hidroelectrica Cahora Bassa (HCB), 82% 
Portuguese-owned and 18% Mozambican-owned, maintains 
ownership and operation of the dam, which supplies a 
majority of its hydropower to South Africa's Eskom. Portugal 
has indicated that it is ready to sell some or all of its 
shares in HCB, as long as a reasonable agreement is reached. 
Although ranked by KPMG Consulting as the second-largest 
revenue-producing firm in Mozambique for 2001 and 2002, HCB 
has always operated in a state of debt (owed to the 
Portuguese Treasury). Dam operation is highly expensive, and 
until last month, Eskom was paying absurdly low prices for 
the hydropower. With the new tripartite agreement between 
Mozambique, Portugal, and South Africa (signed in February 
2004) South Africa will be paying higher tariffs for 
electricity, allowing HCB to operate with increased capital. 
During Barroso's visit, President Chissano also made a pitch 
to the Portuguese Government for further debt relief. If HCB 
ownership turns over to Mozambique, Mozambique would no 
doubt like to see Portugal relieve HCB debt owed to the 
Portuguese Treasury. 
 
8. (U) Energy Sector: According to facts presented at an 
Electricity and Mining Seminar in Maputo by the National 
Director of Energy, Pascoal Bacela, Mozambique has the 
lowest level of domestic energy consumption in all of 
Southern Africa. Only seven percent of the population has 
access to electricity, which corresponds to about 250,000 
consumers. Furthermore, eighty percent of consumers live in 
rural areas. Director Bacela presented energy sector 
opportunities for private investment and encouraged 
investors to take advantage of current hydropower projects, 
such as the Mpanda Mkuwa and Cahorra Bassa Dam, to pursue 
opportunities in electricity distribution. Currently, the 
GRM is completing distribution of energy to all provincial 
capitals by using hydropower coming from Cahora Bassa. 
Bacela indicated that the GRM is interested in continuing to 
use its hydropower resources and explore natural gas and 
steam coal energy options. 
LA LIME