US embassy cable - 04MAPUTO1174

UNCLAS SECTION 01 OF 02 MAPUTO 001174 
 
SIPDIS 
STATE FOR AF/S - BNEULING 
USDA/FAS/EXPORT CREDITS FOR MCHAMBLISS 
PRETORIA FOR AGRICULTURAL ATTACHE - SREYNOLDS, RBICKFORD 
USDOC FOR AHILIGAS 
E.O. 12958: N/A 
TAGS: EAGR, EAID, MZ, Title 1 
SUBJECT: MOZAMBIQUE: FY05 USDA FOOD ASSISTANCE TITLE I-FUNDED FOOD 
PROGRESS REQUEST 
 
REF: STATE 172525 
 
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REQUEST JUSTIFICATION 
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1. Although it still remains one of the poorest countries in Africa, 
Mozambique has been successful in its efforts to encourage economic 
growth, attract foreign investment, and revitalize several industries 
destroyed by the civil war. Mozambique's agricultural sector has vast 
potential, yet many factories sit idle and processing equipment is 
damaged and outdated. Several NGOs have provided business and technic 
support to promising agricultural sectors such as cashews, flowers, 
citrus fruit, and general horticulture. Although agricultural activit 
is increasing, the sector is operating far below its potential. The 
recent National Assessment of Poverty and Well-Being in Mozambique, 
conducted by the Ministry of Planning and Finance, indicated that 60% 
of the population still lives in poverty. With these levels of povert 
improvements in the standards of living of the poor remain a central 
policy objective for the GRM. In this context, Title I is an importan 
economic tool to help Mozambique achieve its goals in reducing absolu 
poverty by providing a government-to-government food donation and in 
turn, using the proceeds from sold commodities to improve access to 
rural financial services and expand income generating options for 
farmers living and working in rural areas. Receipt of Title I food 
commodities may bolster Mozambique's potential to develop its 
commercial markets, as the country undertakes measures to improve foo 
security and agricultural development. Despite progress in increasin 
agricultural production, Mozambique still contains areas of food 
insecurity and as the World Food Programme indicates, one third of th 
population is classified as chronically food insecure. 
 
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VALUE AND TYPE OF COMMODITY REQUESTED 
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2. Mission requests funding for PL 480 Title I-Funded Food for Progre 
grants of agricultural commodities, specifically $5 million of crude 
sunflower oil. 
 
3. Title I sales of this commodity to Mozambique would not disrupt 
normal world commercial trade. 
 
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DESCRIPTION OF USE OF PROCEEDS 
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4. Title I commodities will be sold by the Ministry of Industry and 
Commerce (MIC). Ninety percent of the proceeds will be jointly 
programmed by MIC and USAID to support the Center for the Promotion o 
Rural Financial Services (CPSFR). This program works with existing 
financial institutions (commercial banks, leasing companies, 
microfinance institutions) to cover some of the costs associated with 
obtaining greater outreach in rural areas fostering access, 
competition, better services, and collection of domestic savings in t 
financial sector. Mozambican banks have little incentive to expand 
outreach in rural areas given the high costs of rural transactions an 
the possibility of making money on speculative transactions. With a 
goal towards building capacity in the rural finance sector, the CPSFR 
is designing and implementing pilot projects that expand the access o 
financial products in rural areas. Local stakeholders include the 
banks, leasing companies, micro finance institutions and NGOs, the 
Central Bank (Banco de Mocambique), the Ministry of Agriculture and 
Rural Development, the Ministry of Industry and Commerce (MIC), and t 
Ministry of Planning and Finance. The CPSFR has been successful in 
establishing guarantee funds to small-scale cashew processing plants 
and two local leasing companies (BIM Leasing and BCI Leasing). The 
Center is currently negotiating the extension of lines of credit for 
soya production. Additionally, it intends to provide credit funds to 
local commercial bank, Novo Banco, to expand its provision of financi 
services outside of Maputo(also under negotiation). The joint 
programming of money under this program contributes to commercial 
market development in Mozambique by promoting investments in high- 
growth industries such as horticulture, cashew, soya, and garments. T 
CPSFR is funded by the Act Reflow Account and Title III proceeds. 
Additional funding from Title I proceeds will strengthen the program' 
impact. The GRM, specifically the Minister of Industry and Commerce, 
Carlos Morgado, is highly supportive of the CPSFR program and is 
dedicated to joint-programming of Title I proceeds. 
 
5. The remaining ten percent of the proceeds will be used to support 
USDA's collaborative research program. This program will facilitate 
research between US and Mozambican scientists on specific issues. 
Initial discussions with USDA (FAS Pretoria), identified areas for 
possible cooperation in improving quality control on Mozambican seafo 
exports and identifying ways to improve food security. 
 
6. The GRM has demonstrated great interest in an FY05 Title I-Funded 
Food for Progress program, especially given that Mozambique did not 
receive Title I commodities in FY03 or FY04. Mission urges approval o 
this request, which we believe will program resources in a concerted 
and coordinated manner with other USG initiatives in support of 
expanding free enterprise in the agricultural sector. 
 
7. This request has been coordinated with FAS Pretoria. 
LA LIME