US embassy cable - 04MAPUTO1398

UNCLAS SECTION 01 OF 03 MAPUTO 001398 
 
SIPDIS 
STATE FOR AF/S - HTREGER AND EB/TRA 
PRETORIA FOR JRIPLEY 
FCS - RDONOVAN, JVANRENSBURG 
USDOC FOR AHILLIGAS AND RTELCHIN 
PASS USAID FOR AA/AFR AND AFR/SA 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest 
SUBJECT: SEPTEMBER-OCTOBER ECONOMIC WRAP-UP: MOZAMBIQUE 
 
 
-------- 
CONTENTS 
-------- 
Macroeconomics 
2. GDP Growth Rate Meeting 2004 Target 
3. Inflation Figures 
Ports, Roads, and Railways 
4. Limpopo Bridge 
5. Traffic at Beira Port 
Energy 
6. Negotiations on Cahora Bassa Dam 
Public Utilities 
7. Water Agreements Signed 
Agriculture 
8. Increase in Cotton Production 
9. Increase in Grain Production 
10. Helping Small-Scale Farmers in Zambezia 
Business 
11. Aid to Artisans 
 
1. (U) The Mozambique monthly economic cable is jointly produced 
by the Embassy and USAID. 
 
-------------- 
MACROECONOMICS 
-------------- 
2. (U) The GRM reports that the Mozambican economy is in line 
with the 8% growth rate target for 2004. Economic activity grew 
by 8.4% in the first six months of the year, when compared with 
the same period in 2003. The first six months of 2004 also saw a 
15.9% growth in exports. Most of this growth is a result of the 
opening of the second phase of the MOZAL aluminum smelter. The 
smelter's capacity has doubled to 506,000 tons of aluminum ingots 
per year - all of which is exported. 
 
3. (U) Consumer prices rose by 5.9% in the first eight months of 
2004, and inflation for the full year is expected to be around 
12%. This is slightly lower than the levels of recent years. 
During this same time, the metical appreciated by three percent 
against the US dollar. 
 
-------------------------- 
PORTS, ROADS, AND RAILWAYS 
-------------------------- 
4. (U) In December, the GRM will request bids for design and 
reconstruction of the Limpopo Bridge, in Gaza province. The 
bridge, which was destroyed by Rhodesians in 1979, links the 
districts of Chokwe and Guija. It is anticipated that a firm will 
be chosen in the first semester of 2005 to begin work. The target 
completion date is late 2006. 
 
5. (U) According to news sources, the port of Beira registered an 
8.3% increase in the volume of containerized cargo handled from 
January-August of this year. 28,661 twenty-foot equivalent units 
or teus were handled in this period, compared to 25,461 teus 
during the same time period in 2003. Total movement at the port 
of Beira was 40,801 teus in 2003. Zimbabwean container traffic 
through the port continues to decline due to the economic crisis, 
with 7,632 teus registered from January-August 2004 compared to 
8,806 teus during the same time period in 2003. Despite this 
continuing slow-down, Zimbabwe remains the largest source of 
container trade through the port. Container traffic for Malawi 
and Zambia has registered a slight decline in 2004 to date. 
Botswana, a non-traditional trader at Beira Port, registered an 
increase in container traffic (64 teus compared to date in 2004 
to 40 teus in 2003). Mozambique registered an increase from 2715 
teus in 2003 to 4235 teus in 2004. Contrary to the increasing 
level of container traffic, the port has suffered a 24% decline 
in the passage of general cargo from January-August 2004 (494,416 
metric tons) compared to the same time period in 2003 (650,169 
metric tons). This decline results from the absence of flour 
exported from Zimbabwe and Malawi (Zimbabwe has become a net 
importer of flour due to the current crisis). Likewise, 
ferrochrome and mineral exports from Zimbabwe have sharply 
declined. 
 
------ 
ENERGY 
------ 
6. (U) In a recent visit to Lisbon, President Chissano announced 
his intention to resolve the Cahora Bassa dam issue before the 
end of his mandate (January 2005). The GRM has been in 
discussions with the Government of Portugal over the past year, 
negotiating a new arrangement for ownership of the dam. These 
negotiations were recently put on hold due to the appointment of 
a new Portuguese Prime Minister, Pedro Santana Lopes. Both 
parties are looking for a technical solution that will give 
Mozambique ownership of Hidrolectrica Cahora Bassaa (HCB), the 
firm that runs dam operations. The sticking point remains the 
repayment of a massive amount of debt HCB owes the Portuguese 
Treasury (estimated USD 2 billion, although both parties differ 
on the exact amount) - an amount that the GRM cannot afford to 
pay off. Some are skeptical that an agreement can be reached in 
the next two months. 
 
---------------- 
PUBLIC UTILITIES 
---------------- 
7. (U) The GRM, the World Bank, and the French Development Agency 
will spend nearly USD 15.6 million to improve the quality and 
quantity of water supplied to four major cities across the 
country, including Maputo, Quelimane, Nampula, and Pemba. On 
September 20, the Water Supply Investment and Assets Fund (FIPAG) 
signed agreements with the companies, from France, Zambia, and 
China, that won the international tenders to perform the work 
(launched in 2003 and 2004). Work is expected to be completed by 
mid-2006. The largest amount of work will be done in Quelimane, 
where USD 10.7 million will be spent on expanding coverage of the 
water network from the current 43,000 consumers, representing 
about 20 percent of the population, to over 100,000 consumers. 
In Nampula city, the work is budgeted at USD 2.8 million, and 
will consist of the rehabilitation and extension of the water 
treatment station. In Pemba, a rapidly-growing tourist 
destination on the northern coast, the task is to increase 
pumping capacity from 6,700 to about 14,000 cubic meters a day 
and improve the quality of water, which is expected to cost USD 
2.4 million. The remaining funds will be used to develop a water 
losses study for the city of Maputo. The work in all four cities 
is to be supervised and inspected by "Aguas de Mocambique" 
(Waters of Mozambique), the Portuguese-led consortium that has 
the contract to manage water assets in seven of the country's 
main cities. 
 
----------- 
AGRICULTURE 
----------- 
8. (U) The GRM targets an excess of 85,000 tons of cotton to be 
marketed this year, despite the poor rainy season, particularly 
in Nampula, the province with the highest capacity for 
production. It was previously estimated that Nampula would 
harvest only 30,000 tons of cotton, but there now is hope of 
yields of up to 37,000 or 40,000 tons, which will take the 
marketing figure to over 85,000 tons across the country. The 
various actors involved in the cotton business have fixed the 
producer prices at 7,000 meticais (about 30 US cents) and 5,000 
meticais per kilo of first grade and second grade cotton, 
respectively. 
 
9. (U) Mozambique hopes to produce more than two million tons of 
grain in the 2004-2005 agricultural season, which will result in 
a five per cent increase from the results of the previous 
harvest. In order to prepare the forthcoming agricultural 
campaign, agricultural fairs are taking place around the country, 
allowing farmers to acquire seeds and agricultural tools. 
 
10. (U) According to local news sources, the Government of India 
has opened a line of credit worth USD 20 million for small-scale 
projects to assist farmers in the central province of Zambezia. 
The Mozambican High Commissioner to India and the Executive 
Director of the Export-Import Bank of India signed the memorandum 
formalizing this initiative in India on September 10. The 
initiative covers areas such as the processing of coconuts, rural 
electrification, and the drilling of wells and the installation 
of hand pumps. On the same day a second memorandum of 
understanding was signed under which the government of Mozambique 
and the Export-Import Bank of India reaffirmed their readiness to 
resolve the problem of Mozambique's private debt to India, which 
in late December was estimated to stand at USD 6.8 million 
dollars. The Indian government cancelled USD 3.8 million of 
Mozambique's public debt in May 2003 under the HIPC (Heavily 
Indebted Poor Countries) debt relief initiative. 
 
-------- 
BUSINESS 
-------- 
11. (U) Aid to Artisans (ATA), the American nonprofit 
organization, received a USD 900,000 subsidy to expand business 
and guarantee long-term sustainability to craftwork activity in 
Mozambique and South Africa. This financing, provided by the 
Kellogg Foundation, will enhance the capacity of Mozambican and 
South African artists through the provision of training, the 
development of products, and linkages to the market. ATA has 
been working in Mozambique since 1998 and is supported by various 
donors. The primary focus of assistance has been to provide 
opportunities for craftspeople, specifically in wood sculpturing. 
The Kellogg financing will improve the business opportunities for 
local craftspeople. ATA will do this by creating a "craft 
village" for the artisans to consolidate their handicrafts and 
sell them on the local market and by improving access to export 
markets through fairs and other events. Additionally, they will 
establish a "wood shop" where artisans can obtain prime material. 
Currently, ATA works in Nampula, Manica, and Sofala provinces. 
The financing will allow ATA Mozambique to help a greater number 
of artisans in more locations. 
LA LIME