US embassy cable - 04MAPUTO1432

UNCLAS SECTION 01 OF 03 MAPUTO 001432 
 
SIPDIS 
STATE FOR AF/S HTREGER AND EB/CBA - DWINSTEAD 
DURBAN FOR FCS - JKUEHNER, LKOHRS, AELLARY 
JOHANNESBURG FOR FCS - JVANRENSBURG, WCENTER 
USDOC FOR AHILLIGAS 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, BFIF 
SUBJECT: MOZAMBIQUE: FY 2004 BFIF COMMERCIAL OUTREACH REPORT 
 
REF: STATE 156575 
 
1. SUMMARY. In September-October, econ/poloffs and 
econ/commercial and political assistants traveled to five 
Mozambican provinces visiting various U.S. businesses, commercial 
associations, and local entrepreneurs to support U.S. commercial 
and investment activities and evaluate the business climate 
facing U.S. investors in Mozambique. This year's BFIF program 
resulted in the identification of potential business and 
investment opportunities for U.S. firms, requests for information 
on U.S. financial and lending institutions, and continued 
dialogue on Mozambicans' efforts to take advantage of AGOA. The 
best opportunities for U.S. investment in Mozambique continue to 
be in construction equipment, agribusiness and agriculture, with 
increased potential for high-end tourism. END SUMMARY. 
 
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COMMERICAL OUTREACH IN ZAMBEZIA PROVINCE 
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2. On September 10-16, econ/poloff and econ/commercial assistant 
traveled to Zambezia Province in northern Mozambique to conduct 
commercial outreach, meet with business contacts, and familiarize 
themselves with economic activity in the area. During the trip, 
they attended the Zambezia Economic Forum, a conference aimed at 
evaluating the economic and social performance of the province; 
met with the governor of Zambezia province to discuss agro 
industry investment; visited a tea plantation looking to procure 
equipment from the U.S.; toured the port of Quelimane, one of 
Mozambique's smaller ports recently concessioned to Cornelder 
(Holland) for privatization; and visited the Agrimo-Dunavant 
cotton factory, the largest U.S. investment in the province 
located in Morrumbala, working with more than 500 farmer groups 
in the area. 
 
3. New activities in agriculture, manufacturing, trade and 
tourism have contributed to the development of Zambezia Province. 
We identified the following investment opportunities. Due to the 
large area available for the rice production in province, 
Zambezia businessmen would welcome U.S. investment in irrigation 
systems and in a rice-peeling factory. South African investors 
have made investments in eco-tourism projects, hunting reserves 
and tourism development on the islands just off the coast of 
Pebane, and there may be opportunities for U.S. investment in 
this sector as well. The Sociedade de Desenvolvimento da 
Zambezia (SDZ) tea plantation would like to receive more 
information on USG financial lending organizations such as EX-IM 
Bank, OPIC, and USTDA. SDZ currently purchases equipment from 
Japan and India but is researching opportunities to procure from 
U.S. suppliers. Cotton processed at Agrimo-Dunavant is exported 
to Mauritius, Lesotho and Taiwan. The cotton exported to Lesotho 
is used to make jeans exported to the U.S. under AGOA. The 
company intends to purchase additional trucks, trailers and 
Caterpillar equipment, and expressed interest in contacting EX-IM 
Bank as a possible source of financing. Post will follow up on 
inquiries and pass additional information, as requested. 
 
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COMMERICAL OUTREACH IN SOFALA AND MANICA PROVINCES 
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4. Econ/poloff and political assistant visited Sofala and Manica 
provinces in central Mozambique September 27 October 1 to 
conduct commercial outreach, business meetings and site visits to 
key industries in the region. The city of Beira, Mozambique's 
second largest, has been an important commercial hub due to its 
port and the Beira Development Corridor, running east-west from 
Harare to Beira. On a visit to Belita, the only garment and 
textile factory in Mozambique currently exporting under AGOA, 
Belita Country Manager Joao Nogueira expressed concern over the 
increased competition coming from China, stressing the need for 
Mozambique's continued eligibility under AGOA. Belita currently 
employs over 600 workers and exports finished garments to U.S. 
brands including Vanity Fair, Lee and Ralph Lauren Chaps. 
 
5. Also in Beira, econ/poloff and political assistant visited the 
Commercial Association of Beira (ACB), a 500-member association 
active in providing advice to prospective investors and 
establishing working groups to liaise with the GRM on commercial 
issues. ACB members complained that Maputo continues to absorb 
most of the investment opportunities in the country. They urged 
influential countries like the U.S. to help reverse this trend and 
sought assistance in from Embassy in educating U.S. investors on 
investment opportunities in the region. Post looks to pursue 
commercial programs with ACB, such as investment-related talks and 
visitor programs that may help U.S. investors in the central 
provinces or inform businesses how to take advantage of incentive 
programs such as AGOA. 
 
6. Due to its moderate climate, Manica is a rich province for 
agriculture, and the U.S.-based organizations Technoserve and 
ACDI-Voca, both USAID-funded, are very active in providing 
training programs to local producers and finding export markets 
for Mozambican fruit and vegetables. Econ/poloff and political 
assistant met with representatives from both organizations to 
discuss the local agricultural sector and markets for export. 
Many Zimbabwean farmers have moved to border regions of Manica in 
the last few years because of Zimbabwe's difficulties, and a visit 
was made to a Zimbabwean-owned farm producing paprika, flowers, 
and tobacco for export to Europe and South Africa. There is 
strong agreement that the horticulture industry in Manica has the 
potential for large growth, and its capacity to produce fresh 
flowers and fruit will lead to more investment. Producers have 
recorded great success in exporting roses and other fresh cut 
flowers, as well as flower seeds. Product is currently driven to 
Harare then flown to market, but high fuel prices and poor roads 
have begun to limit the producers' ability to ship product in a 
timely manner. Farmers are currently looking into air shipments 
to Europe from Chimoio, but production volume is not high enough 
at present to take advantage of this option. Econ/poloff spoke 
with Zimbabwean farmers and local government officials about the 
current land and loan issues facing local farmers. Long-term 
financing is virtually non-existent in Mozambique, which has 
limited the rate at which planting and production can increase. 
Manican farmers are seeking help from U.S. financial institutions 
to tackle these issues. Post will follow up on inquiries and pass 
additional information, as requested. 
 
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COMMERICAL OUTREACH IN NAMPULA AND TETE PROVINCES 
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7. Econ/poloff and political assistant traveled to Nampula and 
Tete provinces October 11 - 15. Nampula, Mozambique's third- 
largest city, has become a magnet for African and South Asian 
businessmen, many of whom operate in the informal sector. Direct 
U.S. investment in the region is still virtually non-existent, 
although cashew and cotton producers are increasing production 
and exporting product to Europe, India, and regional markets, 
many with assistance from the USAID-funded organization 
Technoserve. There appears to be no tangible prospects for 
increased exports from Nampula under AGOA in the near future, and 
Nampula's only textile factory with potential export capacity has 
been idled by a strike for over a year, with no signs of 
resolution. The biggest recent economic news in the region has 
been the emergence of Air Corridor, a new Nampula-based airline 
managed and owned by Mozambicans of Pakistani ethnicity. The 
airline started operations in August 2004, breaking the 
government-controlled monopoly on domestic airline services that 
had existed since independence. 
 
8. Tete province is in many ways less developed than Nampula, but 
the economy is growing more rapidly, with U.S. investment playing 
a leading role. The Universal Leaf Tobacco Company of Richmond, 
Virginia (through its local affiliate, Mozambican Leaf Tobacco) 
is currently constructing a factory that will process over 44 
million tons of tobacco per year and will employ an estimated 
1,500 people. Approximately 34,000 local farmers will grow 
tobacco for Mozambican Leaf in Tete province this season, and the 
majority of the product will be sold by Mozambican Leaf to Philip 
Morris. Tete province also boasts a new paprika factory by 
Cheetah (Netherlands), built in 2004, and a new cotton processing 
factory to be built by Dunavant (Australia) in 2005. Discussions 
with local officials revealed that the government was considering 
two bids for a concession to operate the coal mine in Moatize, 
and intended to announce the bid winner prior to Mozambique's 
presidential elections in December. The best opportunities for 
U.S. investment in Nampula and Tete provinces continue to be in 
agribusiness (i.e. equipment, warehouses, processors, 
wholesalers, transporters, and retailers to support the growing 
agricultural industry). 
 
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EXPENDITURES 
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9. Post was allocated USD 7,000 in BFIF funds for FY04. Our total 
expenditures on these trips were USD 12,295.28, and post plans to 
pay the difference out of program or other funds as appropriate. 
The entire budget was allocated to travel, ground transportation, 
and per diem as follows: 
Total airfare: USD 4,889.06 
Total per diem: USD 4,490.93 
Total ground transportation: USD 2,915.29 
The cost of travel within Mozambique is very high, with plane 
tickets to the North of the country costing the equivalent of full 
fare rates to Europe from South Africa. Post made a concerted 
effort to remain fiscally prudent and double-up programming where 
possible. 
 
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COMMENT 
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10. This year's BFIF program once again proved successful. Post 
was able to provide considerable commercial outreach to U.S. 
businesses operating in Mozambique. Additionally, post was able 
to expand its knowledge of business activity outside the capital 
and identify further areas for U.S. investment and export sales. 
Valuable commercial and economic information was provided to 
businesses looking to partner with U.S. investors, and an 
informative investment conference was attended and business 
contacts were expanded. Mozambique is a difficult and distant 
market for U.S. businesses to penetrate, but with continued 
commercial outreach and increased efforts by post to develop 
bilateral business-to-business contacts, business ties can be 
expanded. Post appreciates this opportunity and looks forward to 
the possibility of working with the BFIF program again in 2005. 
End Comment. 
LA LIME