US embassy cable - 04LILONGWE735

C O N F I D E N T I A L SECTION 01 OF 02 LILONGWE 000735 
 
SIPDIS 
 
STATE FOR AF/S T. CRAIG 
STATE PLEASE PASS TO OPIC FOR JAMES POLAN 
 
E.O. 12958: DECL: 08/02/2014 
TAGS: EINV, ETRD, PREL, MI, Economic, Transportation 
SUBJECT: NACALA CORRIDOR AGREEMENT SIGNED 
 
REF: A. MAPUTO 463 
 
     B. LILONGWE 494 
     C. LILONGWE 514 
 
Classified By: Econoff William Taliaferro for reasons 1.4 B and D 
 
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SUMMARY 
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1. (C) After several last-minutes delays and missed 
deadlines, the Government of Malawi has signed a direct 
agreement with the Overseas Private Investment Corporation 
(OPIC) and the Central East African Railways Company (CEAR) 
to revive the Nacala Port and Rail Corridor.  CEAR's holding 
company broke the impasse by agreeing in principle to let a 
potential Malawian investor buy into the company, despite 
rumors of financial connections with the former president. 
The way is now clear for OPIC to reinstate a loan offer that 
was allowed to lapse in May.  If the project comes to 
fruition, it stands to cut the transport cost of Malawian 
imports and exports significantly.  END SUMMARY. 
 
 
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STUCK ON OWNERSHIP 
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2. (U) On July 29, Finance Minister Goodall Gondwe signed the 
OPIC direct agreement that had been the latest stumbling 
block for the Nacala Port and Rail Corridor.  The project 
will refurbish the rail link between Malawi and the 
Mozambican deepwater port of Nacala, as well as the port 
itself.  Despite assurances from both the previous and the 
current government that Malawi was eager to close the deal, 
the GOM had refused since March to sign the OPIC agreement 
unless the project's holding company held open an ownership 
stake for a potential Malawian investor. 
 
3. (U) The holding company, Nacala Corridor Development 
Company (SDCN, the Mozambican abbreviation), recently agreed 
with the GOM on a process by which Malawian investors could 
come forward with an offer within the next six months. 
Agreement on the ownership question instantly opened the way 
for the GOM to sign the $30 million OPIC loan agreement.  For 
the agreement to take effect, however, OPIC must reinstate a 
loan offer that lapsed in May because of the ownership 
disagreement. 
 
 
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RUMORS OF CORRUPTION 
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4. (C) The GOM's demands on behalf of a private investor have 
fueled the rumor that former president (and current ruling 
party chair) Bakili Muluzi has a personal stake in a 
potential investor, Farmers World.  The American shareholders 
in SDCN, Edlow Resources Limited (PROTECT), have told us they 
are convinced Farmers World must have some extraordinary 
financial connection with Malawian political leadership to 
have induced the GOM to hold up the OPIC deal.  Sources in 
the commercial sector here have echoed this conviction, and 
the presence of Farmers World representatives at GOM meetings 
on Nacala suggests that it has some basis in fact.  Muluzi is 
known to be deeply invested in Malawian trucking, so an 
interest in a transport project that could someday dominate 
bulk import and export shipping is plausible, though 
unsubstantiated. 
 
 
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COMMENT: CLEAR ECONOMIC BENEFITS 
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5. (U) A modern, reliable Nacala Port and Rail Corridor could 
have a sizable effect on the Malawian economy.  The country 
relies heavily on imported fertilizers for its agricultural 
base and on tobacco and other agricultural exports for 
foreign currency.  The cost and unpredictability of moving 
goods via mixed truck and rail from seaports in South Africa, 
Tanzania, and Mozambique constitute major constraints on the 
efficiency of Malawi's agriculture and the competitiveness of 
its exports.  With the current GOM finally focusing on 
agricultural trade as a way out of poverty, the time seems 
ripe for attacking these constraints.  The Nacala Corridor 
would go a long way towards accomplishing that, if only by 
connecting Malawi with the closest port.  An additional 
extension of the rail line to the Zambian border at Chipata 
could make Malawi into a modest transportation hub for 
south-central Africa. 
 
RASPOLIC