US embassy cable - 04MAPUTO1211

UNCLAS SECTION 01 OF 04 MAPUTO 001211 
 
SIPDIS 
STATE FOR AF/S - BNEULING, OES - JSTORY, AND EB/TRA 
PRETORIA FOR JRIPLEY 
FCS - RDONOVAN, JVANRENSBURG 
USDOC FOR AHILLIGAS 
PASS USAID FOR AA/AFR AND AFR/SA 
PASS MCC FOR BRIGGS AND GAULL 
SENSITIVE 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest, Electricity 
SUBJECT: AUGUST ECONOMIC WRAP-UP: MOZAMBIQUE 
 
REF: MAPUTO 1091 
 
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CONTENTS 
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Foreign Investment 
- Zambezi Bridge Project 
- AGOA-related Textile Investment 
- Heavy Sands Processing Factory 
Trade 
- Annual FACIM Trade Fair 
Banking and Finance 
- GRM Sells BIM shares 
Civil Aviation 
- New Airline in Mozambique - Air Corridor 
Ports, Roads, and Railways 
- Nacala Corridor 
- Barging on the Zambezi River 
- Investment in Moatize Coal Mines 
Energy 
- Cahora Bassa Dam 
Fisheries 
- Shrimp Fishing in the Sofala Bank 
- OES/NMFS TED Visit 
Agriculture 
- European Union Involvement 
 
1. (U) The Mozambique monthly economic cable is jointly 
produced by the Embassy and USAID. 
 
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FOREIGN INVESTMENT 
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2. (U) The Ministry of Public Works announced the 
creation of a Zambezi Bridge Project Office, located in 
the National Road Administration (ANE), which will 
control the building of the Caia Bridge over the river 
linking Sofala and Zambezia provinces. The bridge is a 
major investment project along the country's north- 
south highway. Currently, overland traffic between the 
north and south depends on an unreliable ferry service 
to cross the Zambezi River. With the USD 80 million 
funding for the bridge secured (Swedish, Japanese, and 
Italian funding, in the form of grants, with the World 
Bank to make up any remaining difference), the GRM is 
moving forward with groundwork for construction. The 
Zambezi Bridge Project Office will be responsible for 
building the bridge, managing support services, and 
undertaking projects related to the bridge that will 
have an impact on the local communities. 
 
3. (U) Mauritian investors recently purchased the 
abandoned premises and machinery of the state-run 
textile company, Textil do Pungue, located in the 
central province of Sofala. The factory has been 
paralyzed for 29 years, and the existing machinery is 
obsolete. The group renamed the company "Palmar 
Mocambique", announcing that it will invest USD 3 
million in an initial phase to rehabilitate the 
premises and equip the factory with new machinery. News 
sources report that Palmar Mocambique plans to employ 
600 workers. The company intends to export garments 
(primarily jeans) to the United States under AGOA and 
sell garments on the domestic market. 
 
4. (U) Construction will begin on Mozambique's first 
heavy sands processing factory in September. The Moma 
Heavy Sands project, valued at USD 360 million, is 
located in the Nampula Province and managed by Kenmare 
Resources of Ireland (reftel). 
 
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TRADE 
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5. (U) The annual trade fair in Maputo, FACIM, (Agro- 
Commercial and Industrial Fair) began on August 30 and 
continues through September 5. FACIM celebrates its 
40th year of activities without interruption since 
opening in 1965. The event was kicked off by the Prime 
Minister, Luisa Diogo. Companies from Portugal, 
Germany, Spain, India, Italy, South Africa, Brazil, and 
Macau are represented at the fair at specific country 
pavilions. Approximately 127 national companies are 
also participating. As was the case last year, the fair 
will be marked by the absence of participation from 
many SADC countries (COMMENT: The reason for this 
absence is unknown, but it could be due to the high 
cost of participation at USD 70 per square meter, which 
makes an indoor pavilion quite expensive. END COMMENT). 
In 2005, the FACIM fairgrounds will be demolished and 
rebuilt with a USD 6 million investment. The current 
compartmentalized and poorly maintained grounds will be 
transformed into a single covered pavilion. Due to 
construction, FACIM will not take place in 2005. 
 
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BANKING AND FINANCE 
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6. (U) According to press reports, the GRM will sell 
off a third of its 23 percent stake in the country's 
largest bank, the International Bank of Mozambique 
(BIM). These shares will be sold to bank managers and 
workers. The state's involvement with commercial banks 
dates back to 1992, when the Central Bank was stripped 
of its commercial functions and state-owned and 
operated commercial banks were created. When 
commercial banks were privatized in 1996, mismanagement 
led to a massive burden of bad loans on and near 
collapse of BIM (BCM at that time). The GRM paid for a 
part of BCM's recapitalization by issuing high interest 
bearing treasury bonds. In 2001, BCM was bought out by 
BIM, and the state retained 23% ownership. The planned 
sale of a third of the 23% honors the GRM's promise to 
transfer shares to the bank employees. The sale 
continues the GRM's gradual withdrawal from the 
commercial banking sector. 
 
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CIVIL AVIATION 
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7. (SBU) A new airline, Air Corridor, began operations 
in Mozambique with the airline's first flight from 
Nampula to Maputo on August 7th. In a big step, the 
operation of a new airline in Mozambique breaks the 
monopoly of LAM, the country's national airline. Air 
Corridor, belonging to the Gulamo Group, rents one 
Boeing 737-200 and employs six Ukrainian pilots. The 
airline, based in Nampula, currently flies only 
domestic routes, but hopes to branch into routes from 
Maputo to Johannesburg, Dubai, Dar es Salaam, and 
Nairobi. Air Corridor representatives, including the 
Chairman, Momade Aquil Rajahussen, told post that the 
company would like to expand its fleet by one or two 
more planes within the next six months. Rajahussen 
stated that there were few problems starting the 
business (COMMENT: If accurate, this is very unusual, 
given the difficult business of breaking politically 
sensitive monopolies and operating in the challenging 
Mozambican business climate. END COMMENT). Grupo Gulamo 
is spending USD 2 million in the initial phase of the 
airline's operation and intends to spend up to USD 20 
million over the next five years. The airline is 
financed purely by private equity from members of the 
Gulamo Group. Several press reports highlighted recent 
incidents involving Air Corridor, including a near miss 
with an LAM plane at Maputo International airport and 
maintenance failures in the plane's cockpit (cockpit 
window). Representatives are accusing the press of 
launching false allegations against the airline, yet 
both incidents did occur and have caused concern among 
the local community. (septel). 
 
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PORTS, ROADS, AND RAILWAYS 
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8. (SBU) In a major success for investment, trade, and 
infrastructure, the Nacala Corridor Consortium (SDCN) 
and the Government of Malawi (GOM) signed a memorandum 
of understanding on the ownership of Malawian shares in 
the privatization of the Nacala Corridor (port of 
Nacala and associated railway line). Under the 
agreement, the GOM will obtain 16.75% of the shares in 
the concession. Negotiations to privatize the northern 
port and rail line have been underway for five years. 
OPIC will finance a USD 32 million loan for 
rehabilitation of the port (approximately USD 20 
million) and the 1800 km railway line that runs into 
Malawi (approximately USD 10 million). The major US 
shareholders in the venture are Edlow Resources Limited 
(ERL) and the Railroad Development Corporation (RDC). 
 
9. SBU (COMMENT: Privatization of the Nacala port and 
railway line had been stalled on the Malawian side due 
to the unwillingness of the GOM to sign the OPIC direct 
agreement for want of more shares in the venture from 
SDCN. This issue has now been resolved. Privatization 
has been stalled on the Mozambican side due to 
unresolved negotiations between SDCN and the port and 
railway parastatal, CFM, on a number of outstanding 
contract management issues. It is unknown whether these 
issues have been resolved, but an inauguration ceremony 
is set for October, when SDCN will assume authority and 
management of the port and railway line. This is a 
positive step forward for a project that will involve 
US businesses and raise the commercial capacity of 
northern Mozambique and parts of Malawi. END COMMENT). 
 
10. (SBU) American Commercial Lines, International 
(ACLI), the American barging firm interested in 
exploring ways to create a barge system on the Zambeze 
River, will visit Mozambique in the next couple of 
months to move forward with a Zambeze River Survey. The 
permission to allow this survey was stalled for a year 
by the Ministry of Transportation due to the 
politically sensitive issue of a barge system possibly 
precluding development of the Sena railway line, a 
major development initiative supported by the World 
Bank. If barging is feasible and economically viable, 
ACLI's goal is to transport coal from the Moatize mines 
(located in Tete) to the coast, where it could be off- 
loaded and exported. For this to happen, potential 
transportation players (whether rail or barge) must be 
in communication with the concessionaire of the Moatize 
coalmines in order to strike a transportation deal. 
 
11. (U) The GRM indicated that out of ten interested 
parties, four firms have been short-listed to compete 
for the Moatize coal concession: Companhia de Vale do 
Rio Doce (CVRD) of Brazil, Anglo-American of South 
Africa, BHP-Billiton of Australia, and Rio Tinto of the 
UK. The estimated coal reserves in the Moatize basin 
are between two and three billion tons. With this 
amount, coal could become a major export for 
Mozambique. In advance of a November proposal 
submission deadline, a CVRD delegation, which included 
the CVRD Chairman and the Chairman of the Brazilian 
National Economic and Social Development Bank, visited 
Mozambique and met with President Chissano to express 
CVRD's interest in competing for the concession. The 
other three firms viewed the high-level treatment that 
CVRD received as unfair and preferential, yet the GRM 
claims that each of the four firms has an equal chance 
of winning the concession bid. 
 
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ENERGY 
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12. (U) The Governments of Mozambique and Portugal will 
reopen negotiations on ownership of Hidroelectrica 
Cahora Bassa (HCB), the firm operating the Cahora Bassa 
Dam. Negotiations were temporarily put on hold due to 
the resignation of Portuguese PM Durao Barroso to 
assume the Presidency of the EC (COMMENT: Before the 
departure of Barroso, the second round of negotiations 
had been scheduled for August 2004 in Maputo. END 
COMMENT). Under the current arrangement, 82% of the 
shares in HCB are held by Portugal and 18% by 
Mozambique. Mozambique would like to assume majority 
ownership of HCB, with the government of South Africa - 
the primary market for the electricity - as a potential 
minority shareholder (a 51/49 arrangement, 
respectively). Portugal is interested in selling its 
shares, yet there is unsettled business regarding a 
large debt owed to the Portuguese Treasury by the GRM. 
The debt derives from dam maintenance and post civil- 
war reconstruction. The parties do not agree on the 
exact amount of debt owed, and the Government of 
Portugal is unlikely to sell its shares in HCB without 
a solution to the debt payoff. Press reports indicate 
that the GRM is looking for a financial partner to help 
them pay off this multi-million dollar debt, but as of 
yet no partner has been identified. 
 
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FISHERIES 
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13. (SBU) The GRM is exploring new ways to manage and 
control the capture of surface-level shrimp, a USD 120 
million industry for Mozambique in 2003. Historically 
an important export for Mozambique, shrimp export 
revenues accounted for 84% of total commercial fishing 
export revenue (USD 80 million) earned in 2003. Leading 
a workshop on the management of shrimp fishing in the 
Sofala Bank, Vice-Minister of Fisheries, Alfredo 
Massinga, described the need to reinforce the control 
of shrimp capture by providing greater fisheries 
enforcement. Massinga also stressed the importance of 
recognizing the resource as part of a larger ecosystem 
that must be properly managed and protected. (COMMENT: 
With an extremely weak capacity to implement any type 
of maritime enforcement, Mozambique's fisheries are 
being over-exploited due to heavy illegal fishing by 
predominately Asian operators. The GRM is exploring 
ways to improve its enforcement capabilities. The 
solution may be in privatizing maritime enforcement or 
receiving help from donor countries in the form of 
patrol boats and/or training. END COMMENT). 
 
14. (U) In mid-August, a team from the DOS (OES Bureau) 
and the National Marine Fisheries Service (NMFS) 
arrived in Mozambique to teach local Ministry of 
Fisheries officials, port inspectors, and fishermen how 
to install, use, and monitor turtle excluder devices 
(TEDs) on shrimping nets. At the request of the GRM, 
the team spent several days at the ports of Maputo and 
Beira teaching techniques of TED installation and 
implementation. The team's intention was to prepare 
fishermen, officials, and inspectors for implementation 
of the TEDs law that the GRM will enforce beginning 
January 1, 2005. According to the law, all industrial 
and semi-industrial shrimping fleets must install and 
trawl with TEDs after this date, a move to protect sea 
turtles and allow fishermen to export their catch to 
the United States. If Mozambican fishermen are properly 
observing this new regulation when US officials return 
for a certification visit (possibly in May 2005 or when 
the GRM feels that it is ready for an inspection), 
Mozambique may be TED-certified, allowing fishermen to 
export its world-class prawns to the United States. 
 
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AGRICULTURE 
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15. (U) Over a period of two years, the European Union 
(EU) will provide a 48 million euro (approximately USD 
54 million) grant to strengthen various agricultural 
projects and improve food security in Mozambique, 
according to the Pinto Teixeira, the local EC head of 
delegation. Teixeira and the Minister of Agriculture, 
Helder Muteia, signed an agreement for 9.5 million 
euros, two million of which will be spent on 
strengthening the National Cashew Institute (INCAJU), 
the Mozambique Cotton Institute (IAM), and the Office 
of Commercial Agriculture Promotion. The remaining 7.5 
million euros will be spent on food security projects 
in Niassa, Nampula, Zambezia, and Inhambane.? 
LA LIME