US embassy cable - 04MAPUTO712

UNCLAS SECTION 01 OF 03 MAPUTO 000712 
 
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: MAY MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE 
? 
----------------------- 
FOREIGN INVESTMENT 
---------------------- 
1. (U) A major Zimbabwean horticultural company is shifting 
its operations to Mozambique and Zambia as a result of land 
seizure in Zimbabwe. Ousted by the Zimbabwean Government, 
 
Kondozi Company will be granted 800 hectares of land in the 
Manica Province by the GRM, according to AIM Reporting. 
Hundreds of Zimbabwean farmers are already working in this 
province, overwhelmingly in the agricultural sector. 
Majority shareholder, Edwin Moyo, said his firm would buy a 
further 2,000 hectares in Gwembe Valley, Zambia. The 
company will operate with advanced irrigation equipment and 
is financed by big names such as the South African 
Industrial Development Corporation (IDC) and Barclays Bank 
International. 
 
------------------ 
MACROECONOMICS 
------------------ 
2. (U) The leaders of the New Partnership for Africa's 
Development (NEPAD) convened in Maputo to assess NEPAD's 
progress and acknowledge the challenges that lie ahead for 
the continent. Representatives from twenty African countries 
attended the meeting of the NEPAD Implementation Committee 
to discuss, among other things, poverty eradication and 
achievement of the UN's Millennium Development Goals. 
Improving Africa's infrastructure and food security are high 
priorities for the NEPAD group. 
 
--------------------------- 
PORTS, ROADS, AND RAILWAYS 
--------------------------- 
3. (SBU) With the April announcement that Rites and Ircon, a 
private Indian consortium, was awarded reconstruction and 
management of the Sena Railway Line (leading from the coast 
to the extensive coal deposits at Moatize), as well as 
management of the Machipanda Line (leading from the coast to 
Zimbabwe), pol/econoff and USAID paid a visit to the Ports 
and Railways Company (CFM) to speak with key contacts. The 
GRM, through CFM, will be in negotiations with the Indian 
group to determine subcontract arrangements, management 
details, and sign the formal contract next month. Also, 
later in June, the World Bank will appraise the agreed-upon 
terms, and assuming economic feasibility, the project will 
be sent to the World Bank for a $120 million loan/IFC/MIGA 
package approval in July. Mission officers think this 
timetable is optimistic, considering the hesitation the GRM 
places on big infrastructure and privatization deals. On the 
other hand, unlike other projects, reconstruction of the 
Sena Line has huge political impetus and has already been 
treated as a top governmental priority. CFM board member and 
civil engineer, Domingos Bainha, asserted that Sena Line 
reconstruction would take three and a half years. Important 
products likely to be carried on the 600km line are: 
limestone, cotton, sugar, wood, and eventually, steam and 
coking coal from the Moatize mines. Bainha also noted that 
the Sena Line would carry passenger traffic. According to 
CFM, the line will increase employment (creating 1500 jobs 
at the start of construction), transport goods and people, 
spur economic development, and revive and grow small towns 
in the central provinces. CFM will be a 49% shareholder in 
the construction and management of the line. COMMENT: The 
Mission believes there are several economic and financial 
inconsistencies with the push forward to fund Sena Line 
reconstruction. With a low tonnage capacity, CFM expects 1 
million tons of coal/year to be transported and exported, 
once reconstruction is complete. Car size and axle load, as 
well as limited capacity at the shallow and muddy port of 
Beira, will not allow for rapid expansion of coal exports. 
This figure pales in comparison to the 80 million tons of 
coal/year that is shipped out of the closest regional 
competing port, Richard's Bay, South Africa. USG questions 
the economic viability of the Sena Line, especially 
considering the overwhelming financial cost to rebuild the 
infrastructure. The are alternatives for transporting the 
Moatize coal that may be more economically sound; including 
construction of a spur to the Nacala Railway Line (in the 
North) and use of the natural deep water port of Nacala, or 
barging coal along the Zambeze River (in the central region) 
to load at sea. END COMMENT. 
 
-------- 
ENERGY 
-------- 
4. (U) With an award out for reconstruction on the Sena 
Railway Line, conversation about investors for the Moatize 
coalmines is increasing. The Minister of Mineral Resources 
and Energy, Castigo Langa, announced that the GRM is 
preparing to attract possible investors for this project by 
releasing a tender at the beginning of June. Several 
international mining firms have shown interest in competing 
for the coalmines by conducting evaluations on mine capacity 
and potential. One such group is Compania do Vale do Rio 
Doce, a well-known Brazilian mining firm. The GRM estimates 
that the mine has the capacity to supply up to 10 billion 
tons of coal, but world export of the product depends on a 
functional railway line to the coast, which may take another 
three and a half years to complete (Sena Line). 
 
------------ 
AGRICULTURE 
------------ 
5. (U) In the present agricultural campaign, Mozambique is 
expected to harvest over two million tons of main crops, a 
target set by the Ministry of Agriculture and Rural 
Development (MADER). 
 
6. (U) In 1999, MADER launched PROAGRI, the GRM's sector 
wide investment program, which counts with broad donor 
support including that of USAID. One of the overarching 
objectives of the program is to strengthen the public 
sector's ability to perform its core functions in a market 
economy: policy making; efficient delivery of some key 
agricultural support services; and the establishment of 
framework for the sustainable and transparent management of 
natural resources. Although new systems for financial 
management and investment planning were successfully 
introduced, the Ministry has lagged on the more structural 
reforms required in staffing and ministry re-organization. 
Further, the consistently tardy transfer of budget resources 
from the Ministry of Planning and Finance has compromised 
the achievement of field-based results, with very few 
farmers registering improvements in the quality and 
relevance of agricultural support services delivered in the 
field since the launch of PROAGRI. According to the Vice- 
Minister of Agriculture, Joao Carrilho, access to credit and 
lack of infrastructure that allow farmers to bring products 
to market are major obstacles for small producers in 
Mozambique. At present, a multi-donor appraisal team is 
reviewing the proposal for the second five-year tranche of 
PROAGRI, or PROAGRI II. The proposal under review 
introduces some changes that will increase effective 
decentralization to provincial and district levels and 
ensure a more results oriented program. A new institutional 
configuration that streamlines functional responsibilities 
is also proposed. USAID will continue supporting this 
important process but will increasingly tie its budget 
support to specific policy and agricultural activities. 
 
7. (U) According to the National Institute of Sugar (INA), 
sugar production will rise 20 percent in 2004. This 
expectation is gleaned from the per hectare yield projection 
of 71 tons/hectare in 2003 to 76 tones/hectare in 2004. 
Sugar production was decimated by the civil war, as most 
factories were demolished. Post-1992, actions have been 
taken to rehabilitate four sugar factories, namely 
Mafambisse and Marromeu factories, both located in the 
central region of the Sofala Province and Maragra and 
Xinavane factories in the Maputo Province. Other giant 
factories located in Zambezia and Sofala still lack 
investment and sit inoperative. The GRM hope is to bring the 
production of sugar back up to pre-civil war levels, 
increasing output and local employment. 
? 
-------- 
LABOR 
-------- 
8. (U) On May 5, the USG sponsored a half-day labor seminar 
focused on Mozambican labor law reform. The seminar, funded 
by USDOL and managed by the Mission, attracted over 60 
participants from the private sector, the GRM, academics, 
unions, legal experts, and donors. The seminar was hailed as 
the most covered USG press event of the year in Mozambique. 
The seminar featured four researchers, presenting analyses 
on Mozambican labor law, union-based bargaining in 
Mozambique, and Mozambique's labor system in comparison with 
regional competitors. At the end of each presentation, 
authors suggested recommendations for reform and the 
audience launched into debate on various labor topics. 
Success of the seminar was marked by the full-day 
participation of Minister of Labor, Mario Lampiao Sevene, 
initiative of the US Ambassador to open the event and call 
for greater labor law liberalization to attract foreign 
investment and increase employment, and the event's 
timeliness. The seminar was held just prior to the GRM's 
announcement of a team to review current legislation, set to 
be amended and revised by 2005. 
LA LIME