US embassy cable - 04MAPUTO625

UNCLAS SECTION 01 OF 04 MAPUTO 000625 
 
SIPDIS 
STATE FOR AF/S 
PRETORIA FOR JRIPLEY 
JOHANNESBURG FOR RLO - BNUELING 
FCS - WCENTER 
USDOC FOR AHILIGAS 
PASS USAID FOR AA/AFR AND AFR/SA 
SENSITIVE 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest 
SUBJECT: APRIL MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE 
 
 
----------------------- 
FOREIGN INVESTMENT 
---------------------- 
1. (SBU) With significant Mozambican official travel to 
China in April (President Chissano, Minister of Industry and 
Commerce Morgado, Minister of Labor Sevene, Minister of 
Agriculture Muteia, and others), the Government of China 
announced its willingness to support the building of mega- 
projects in Mozambique, such as dams, irrigation systems, 
and other projects to enhance socio-economic development. 
The Chinese are also interested in investing in the valuable 
Moatize coalmines located in Tete province and in 
rehabilitating the Mocuba textile factory in Zambezia. To 
formalize Chinese intentions and Mozambican willingness to 
cooperate, President Chissano and his counterpart, Hu 
Jintao, signed a new economic and technical agreement 
between the two countries. Under this agreement, there will 
be cooperation in the areas of agriculture, education, 
health, and mining. (COMMENT: China and Mozambique have been 
long-time allies and diplomatic partners. In the area of 
aid, China has built several governmental and military 
facilities for GRM use. The Chinese are bringing more and 
more operations to Mozambique in the areas of construction, 
mining, and agriculture. With this reaffirmed pact of 
cooperation, China could become an even bigger player in a 
greater number of sectors. This creates USG concern, as the 
GRM tends to turn a blind eye to illegal Chinese operations 
taking place in Mozambique, such as illegal fishing and 
deforestation in the central-northern regions. END COMMENT). 
 
2. (U) A study is now underway to assess the viability of 
building a fuel pipeline from the port of Nacala to Malawi. 
According to Minister of Transportation, Tomas Salomao, the 
study will make recommendations to the Mozambican and 
Malawian Governments as to the viability of the project and 
the potential for the pipeline supplying Zambia and parts of 
the DRC. The building of the pipeline was recommended during 
the February 2003 Nacala Corridor's Investment Conference. 
(COMMENT: A similar fuel pipeline already exists in 
Mozambique's central region, traveling from the port of 
Beira to Zimbabwe. END COMMENT). 
 
3. (U) The South African timber company, Komatiland Forests, 
has assumed control of the Manica Forest Industries 
(IFLOMA). Komatiland is expected to manage the 18,700 
hectares and three production units of IFLOMA and will 
inject thousands of dollars into rehabilitation of 
infrastructure, acquisition of equipment, and in planting 
and operational services. Reactivation of IFLOMA is expected 
to create around 200 new jobs, according to the local press. 
Komatiland has promised to train staff and ensure local 
processing and export of its wood products. 
 
------------------ 
MACROECONOMICS 
------------------ 
4. (U) On April 15, Prime Minister Luisa Diogo launched the 
opening of the second Africa Partnership Forum of NEPAD. 
The USG representatives attending this forum were USAID 
Assistant Administrator for Africa, Constance Newman, and 
American Ambassador to Mozambique, Helen La Lime. Diogo 
stated that African countries can only solve their many 
problems if they work together, "complemented by support 
from their partners in the developed world" (AIM news 
report). Although most of the two-day forum took place 
behind closed doors, the themes discussed by African leaders 
and their cooperation partners (donors and funding agencies) 
were clear from Diogo's opening. The Prime Minister 
described the continuing issues of underdevelopment, poor 
economic performance, high levels of foreign debt, weak 
access to scientific and technological advances, and the 
prevalence of deadly diseases in Africa. She described the 
devastating impact of HIV/AIDS on Africa as a public health 
problem and a question of strategic and development 
security, partially negating efforts to train and retain 
skilled staff. According to Diogo, it is investment in 
education and training that will bring the continent out of 
its bleak social and economic state. Also crucial to this 
effort is a change in the rules of international trade, 
allowing favorable conditions to developed markets for 
African goods. Lastly, Diogo mentioned the burden of 
Africa's foreign debt, saying that it has reached 
"unsustainable levels" with countries obliged to divert a 
large part of their GDP to debt payment. The Prime Minister 
called for greater debt relief and praised such steps as the 
World Bank/IMF Heavily Indebted Poor Countries (HIPC) debt 
relief initiative. 
 
5. (U) On June 2-4, the World Economic Forum will host the 
Africa Economic Summit 2004 in Maputo, Mozambique. The 
summit will gather leaders from business, politics, and 
civil society, serving as a platform to rally key actors to 
address the major development challenges facing Africa. At 
the event, participants will engage in dialogue to advance 
the cause of Africa's integration into the global economy. 
The tentative USG representatives to this forum are Acting 
Assistant Secretary for the Bureau of African Affairs, 
Department of State, Charles Snyder, and Acting Deputy 
Assistant Secretary for Africa, the Middle East, and South 
Asia, Department of Commerce, Holly Vineyard. 
 
6. (U) The Government of India cancelled all Mozambican 
public debt to India this month, amounting to about $3.8 
million. According to local news reports, the Government of 
India also expressed willingness to discuss possible 
alternatives for dealing with private debt, estimated at $6 
million. Under Mozambican law, one alternative would be to 
turn this debt into investment through a swap. Furthermore, 
India has made available a line of credit of $20 million, 
intended to promote projects that will import goods and 
services from India, thus tying the aid. In anticipation of 
this program, many Indian businesses are drawing up projects 
in such areas as rural electrification, pharmaceuticals, and 
food industries. 
 
------------ 
AGRICULTURE 
------------ 
7. (U) A recent study undertaken by the US NGO Technoserve 
revealed that Mozambique has significant potential for 
horticulture production in the central regions of Sofala and 
Manica. The NGO found that 550,000 hectares in the Beira 
corridor could be used in the large-scale production and 
exportation of fruit, vegetables, and flowers to markets 
such as England, South Africa, and Europe. Technoserve 
identifies and lends technical support to small-medium sized 
enterprises producing roses, pineapples, bananas, beans, 
citrus fruits, and vegetables. With appropriate help from 
the donor community, Technoserve estimates that $30 million 
could greatly improve the infrastructure situation that 
limits the volume that many producers are able to achieve. 
The major infrastructure needs include: improving the 
electricity network, expanding the water supply, building 
small dams, improving the rural road network, and 
establishing financial institutions that can provide credit 
to producers. Once infrastructure is improved, producers 
could increase capacity and export more to the world market. 
According to Technoserve, this is an activity that will 
bring profit to the Mozambican agricultural sector and small- 
medium sized producers. 
 
-------------------- 
MINERALS AND ENERGY 
-------------------- 
8. (U) There are positive signals that implementation of the 
Moma Heavy Sands Project will move forward as planned. Irish 
firm Kenmare Resources contracted South African engineering 
group Bateman and Australian joint venture partner Multiplex 
to build the Moma Titanium Minerals mine in Nampula 
Province, Mozambique. Kenmare estimates mine completion will 
take two years. Once operational, the mine will produce 
ilmenite, zircon, and rutile for export, intended to compete 
in the same market as South Africa's growing titanium coast 
at Richard's Bay. Kenmare stated that a debt-funding 
package is being negotiated with a lender group comprised of 
the European Investment Bank (EIB), the African Development 
Bank (ADB), a Dutch development finance institution, a 
German development finance institution, and South Africa's 
largest retail Bank, ABSA. The firm estimates the life of 
the mine to be more than fifty years and expects the project 
to generate revenue of about $85 million/year. According to 
Kenmare, sales contracts covering more than 50% of the first 
five years have already been negotiated. The entire project 
is budgeted at $360 million. (COMMENT: A similar mineral 
mining effort is underway in the southern province of Gaza, 
the Limpopo Corridor Sands Project. The Limpopo Sands 
Project is managed by Southern Mining Corporation (South 
Africa), Western Mining Resources (Australia), and 
Industrial Development Corporation (South Africa). 
Mozambique has tremendous potential in the mining sector due 
to the plethora of mineral resources found along the 
coastline. This sector is just beginning to gain momentum 
and could bring sustainable profits to foreign investors and 
Mozambique alike. END COMMENT). 
 
-------------------- 
BANKING AND FINANCE 
-------------------- 
9. (U) A bill amending the financial regulation of banks and 
other financial institutions was brought before the 
Mozambican Parliament in April. The bill tightens banking 
supervision and seeks to ensure that funds obtained 
illicitly do not enter the banking system. The bill hands 
regulatory powers previously in the hands of the government 
over to the Central Bank - the Bank of Mozambique. Thus, the 
Central Bank, rather than the Finance Ministry, would be 
given the authority to authorize new financial institutions, 
revoke such authorizations, permit or refuse mergers, and 
authorize the dissolution of banks and similar companies. 
The Central Bank is already empowered to freeze any account 
that it suspects to be used in criminal activities. Both the 
Legal Affairs Commission and the Planning and Budget 
Commission of the Assembly of the Republic fear the bill has 
gone too far in transferring power from the Finance Ministry 
to the Central Bank. 
 
-------- 
LABOR 
-------- 
10. (U) In April, the GRM increased the country's statutory 
minimum wage by slightly more than the 2003 inflation rate 
of 13.4%. Retroactive to April 1, 2004, the minimum wage for 
industry, services, and the civil service rose by 14%, from 
$41 to $47 per month. The minimum wage for agricultural 
works rose by 15%, from $29 to $34 per month. Although the 
hike in wages for agricultural workers was higher, there is 
still a significant gap between wages for different groups. 
The GRM is addressing this issue. In the private sector, 
wages above the minimum are generally fixed through 
collective bargaining between employers and trade union 
committees. In the public service, all wages are fixed by 
the government. Low wage state workers received a 14% 
increase, whereas mid-high wage state workers received only 
a 10% wage increase. This decision conflicts with the 
declared government policy of decompressing salaries in 
order to retain skilled staff in the public administration. 
The result may be a further migration of highly trained 
workers out of state employment into the private sector, 
foreign agencies or NGOs1). Each year, the statutory minimum 
wage is negotiated in a tripartite Consultative Council, 
between the trade unions, employers' associations, and the 
government. Negotiations went into deadlock after employers 
refused to negotiate higher than a 10% increase and the 
unions refused to move below a 16,9% increase. At that 
point, the matter was handed over to the GRM. 
 
11. (U) On May 5, the USG will hold a Labor Seminar intended 
to present the results and analyses of several studies, 
commissioned by the US Department of Labor, on the labor 
system in Mozambique. The opening report will present a 
review of the labor law and recommendations for 
liberalization and reform; the second report will present 
the situation of industrial-based bargaining in Mozambique 
(the USG has provided significant training to Mozambicans in 
this area), and the third will address the similarities and 
contrasts between the Mozambican, Kenyan, Malaysian, and 
South African labor systems. The seminar will bring together 
Mozambican government officials, donors, private business 
organizations and employers, unions, and academia for 
discussion on these topics. (COMMENT: Mozambique will begin 
the process of revising its labor law in 2005. The current 
law is ambiguous, burdensome on employers, and discourages 
foreign investment. The USG hopes to continue its efforts, 
through the US Department of Labor and USAID, to move 
Mozambique's labor law towards greater openness and 
liberalization. Additionally, the USG is working with local 
business organizations to find ways to reduce HIV/AIDS in 
the workplace (Project Hope and Empresarios Contra SIDA). 
END COMMENT). 
LA LIME