US embassy cable - 04MAPUTO1609

UNCLAS SECTION 01 OF 02 MAPUTO 001609 
 
SIPDIS 
STATE FOR AF/S HTREGER AND EB/TRA 
PRETORIA FOR JRIPLEY 
JOHANNESBURG FCS FOR RDONOVAN, JVANRENSBURG 
USDOC FOR RTELCHIN 
MCC FOR SGAULL, TBRIGGS 
PASS USAID FOR AA/AFR AND AFR/SA 
SENSITIVE 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, ETRD, MZ, Monthly Econ Digest 
SUBJECT: NOVEMBER ECONOMIC WRAP-UP: MOZAMBIQUE 
 
REF: A. MAPUTO 894 
 
B. MAPUTO 712 
C. MAPUTO 340 
D. MAPUTO 1519 
Sensitive but Unclassified Business Confidential Information. 
Not for Internet Posting. 
 
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CONTENTS 
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Foreign Investment 
2.CVRD wins Moatize mine concession 
3.Sasol to explore more natural gas fields 
Macroeconomics 
4. French debt relief under HIPC 
Agriculture 
5. Cotton production at 80,000 tons in 2004 
Business 
usiness 
6. Buzi Sugar Corporation taken over by Maragra 
7. Coke defrauded 
8. Mozambican-assembled jeans to be exported under AGOA 
 
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) On November 12, the Brazilian mining giant Companhia Vale 
do Rio Doce (CVRD) was awarded the Moatize mines exploration 
concession (Ref A). CVRD is investing USD 122 million for the 
initial phase of development, a feasibility study, scheduled for 
18 months. The firm seeks to market 15-16 million tons of coal 
per year. Recent studies suggest that the mines possess 2.4 
billion tons of coal reserves. CVRD also plans to build a 1500 
megawatt coal-fired power station in Tete province close to the 
mines. According the country's official news agency, AIM, the 
bulk of the coal will be exported primarily to Brazil. As part 
of its bid, CVRD agreed to give the GRM five percent of the 
shares in the Moatize mining company and make an additional ten 
percent available to private investors. It is unclear how CVRD 
will choose to move the coal to the coast for export (the mines 
are located 250 miles inland). Just this year, Rites and Ircon 
(India) was awarded the concession to reconstruct and manage the 
Sena railway line for a period of 25 years (Ref B). The line 
originates at Moatize and ends at the port of Beira. Use of the 
Sena line is a possible option. However, Beira port is 
relatively shallow and presently cannot accommodate Cape-size 
vessels. Mozambique's only deep-water port, Nacala, roughly 
1,000 miles up the coast from Beira, could be used instead as the 
export port for Moatize coal; this would entail constructing 
about 100 miles of new rail line mostly in Malawi, to connect 
with the existing Malawi-Nacala line. Separately, an American 
firm, American Commercial Lines International (ACLI), is 
interested in developing a barge service to carry coal down the 
Zambeze River to an off-shore transfer point near the coastal 
town of Chinde. CVRD is expected to start production in 2009. 
 
3. (U) The GRM and Sasol, the giant South African oil and gas 
company, will enter into an agreement soon allowing further 
exploration of offshore natural gas fields in the central part of 
Mozambique. Earlier SASOL found large reserves of natural gas in 
the Pande and Temane fields in Inhambane province and began 
exporting natural gas to South Africa by pipeline in 2004 (Ref 
C). The entire undertaking was estimated at USD 1.2 billion and 
is considered one of Mozambique's top two mega-projects (second 
only to the MOZAL aluminum investment). Sasol will explore the 
offshore sites in partnership with Mozambique's National 
Hydrocarbon Company. 
 
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MACROECONOMICS 
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4. (U) The government of France further reduced Mozambique's debt 
by 21.5 million euros. This is the second debt reduction 
agreement signed between France and Mozambique. France is 
working to annul the total bilateral debt (in the amount of 444 
million euros) owed to it in accordance with the Heavily Indebted 
Poor Countries (HIPC) Initiative. Ministry of Planning and 
Finance officials state that this cancellation of debt will allow 
the GRM to make progress implementing poverty red 
uction programs 
in Mozambique, the state's number one priority. 
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AGRICULTURE 
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5. (U) Farmers produced and sold nearly 80,000 tons of raw cotton 
to local production factories in the 2003-2004 agricultural 
campaign. According to the Mozambican Cotton Institute, another 
7,000 tons will be sold to local firms before the end of the 
year, making it possible for Mozambique to export 87,000 tons of 
cotton in 2004. This is a huge spike from 2003, when only 54,000 
tons were sold on the global market. 
 
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BUSINESS 
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6. (U) The GRM formally handed over the Buzi Sugar Corporation to 
its new owner, Marracuene Sugar (also known as Maragra), which 
now owns 100 percent of the old Buzi estate. Maragra intends to 
rehabilitate the Buzi factory with new equipment and start 
producing alcohol. The rehabilitation and reopening of Buzi is 
expected to create a significant number of local jobs, 
stimulating the surrounding economy. A Maragra spokesman states 
that the company will seek to hire ex-Buzi employees and build a 
housing community on the estate. Mozambique's National Sugar 
Institute expects the market for sugar to remain soft until the 
EU opens its market to developing countries in 2009. 
 
7. (SBU) Several major businesses are reportedly closing their 
accounts with Banco Internacional de Mocambique (BIM) and 
reopening with Standard Bank due to illegal actions involving 
Ministry of Finance officials and BIM employees. In July, Coca- 
Cola paid 5-6 billion meticais (roughly USD 250,000) in VAT to 
the Ministry of Planning and Finance. After receiving a signed 
and stamped receipt from the Ministry, Coca-Cola received a phone 
call requesting the same July VAT payment. A Coke contact says 
that when the firm declared that it had paid and received the 
receipt, the Ministry said it had no record of the payment. Upon 
visiting the Ministry of Finance to identify the employee who 
processed the receipt, Coca-Cola could not find that person and 
the Ministry declared the receipt fake. Several days later the 
USD 250,000 was withdrawn from Coke's account, culprit unknown. 
Coke repaid the USD 250,000 to the Ministry of Finance. However 
Coke, plus many other big firms including Sasol, Mozambique 
Electricity, and others, are pulling their accounts from BIM due 
to the recurring problems that exist with the bank's shady 
operations. The discovery of corruption by Ministry of Finance 
officials is not new news, as the press is vocal about claims 
that Finance is one of the most corrupt ministries (particularly 
the Customs Department) in Mozambique. 
 
8. (U) Econ/poloffs and the President of the U.S.-based Corporate 
Council on Africa (CCA) visited Belita, the only garment factory 
in Mozambique exporting to the U.S. under AGOA. Belita exports 
sweatshirts, t-shirts, and polo shirts to Vanity Fair, Chaps, 
FUBU, and Lee. Sales from January to October 2004 totaled 
approximately USD 1.4 million, and are expected to reach USD 2.2 
million by the end of the year. Belita buys almost all of its 
primary material (fabric, labels, zippers) outside of Mozambique. 
Belita's parent company, the Palmar Group, located in Mauritius, 
handles all marketing, communication, and logistics for the sale 
of Mozambican-produced garments. In January 2005, Belita expects 
to open a jeans-production plant in Maputo. Belita will source 
all denim from Southern Africa. Over 1,000 staff will be 
employed, and Belita's AGOA sales to the U.S. are expected to 
increase (Ref D). 
LA LIME