US embassy cable - 05MAPUTO1

UNCLAS SECTION 01 OF 03 MAPUTO 000001 
 
SIPDIS 
STATE FOR AF/S TREGER 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: MOZAMBIQUE - DECEMBER ECONOMIC WRAP-UP 
 
REF: Maputo 0712 
 
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CONTENTS 
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Business 
2. KMPG's "Top 100 Businesses" 
Foreign Investment 
3. Bilateral Investment Treaty (BIT) Ratification 
4. Potential American and European Tourism Investment 
Transportation 
5. Credit Agreements Signed Sena Railway Line 
Industry 
6. New Cement Factory Opens Up 
7. Corridor Sands Factory Under Construction in 2006 
Energy 
8. Electrification of Nampula Province 
Macroeconomics 
9. State of the Economy in 2004 
 
1. (U) The Mozambique monthly economic cable is jointly 
produced by the Embassy and USAID. 
 
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BUSINESS 
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2. (U) KPMG's annual ranking of the top 100 revenue- 
producing companies in Mozambique found Mozal, the 
Australian-owned aluminum smelter, again to be number one. 
Mozal's revenue in 2003 totaled nearly USD 380 million (net 
profits were USD 21 million). Hidroelectrica Cahora Bassa 
(HCB), the 80 percent Portuguese government-owned, 20 
percent Mozambican government-owned company that operates 
Cahora Bassa Dam, came in at number two, with revenues 
reaching USD 248 million. Several parastatals remain in 
the top 10 such as Mozambique Electricity (EDM), 
Mozambique Telecommunications (TDM), and Mozambique Ports 
and Railways Company (CFM). Six of the top 100 firms have 
American ties and were ranked as follows. Coca-Cola ranked 
at 18 (USD 43.5 million in revenues), Mobil Oil at 19 (USD 
42 million in revenues), Mobeira (subsidiary of Seaboard 
Corporation) at 22 (USD 29 million in revenues), Avis Rent- 
a-Car at 51 (USD 9 million in revenues), Colgate Palmolive 
at 64 (USD 5 million in revenues), and KPMG at 83 (USD 4 
million in revenues). 
 
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FOREIGN INVESTMENT 
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3. (SBU) On December 8 the Council of Ministers ratified 
the U.S.-Mozambique Bilateral Investment Treaty (BIT). 
(Note: The USG ratified the treaty in December 1998. End 
Note.) The Embassy is working with the Ministry of Foreign 
Affairs to schedule a date for the exchange of ratification 
instruments. 
 
4. (SBU) According to local media, the Minister of Tourism 
announced recently that European and American investors are 
interested in spending nearly USD 250 million to develop 
tourism in northern Mozambique. The funding will be used 
to build infrastructure in the Niassa Reserve (a Kruger 
Park-sized wildlife reserve) and on the beaches and the 
islands along the coast of Cabo Delgado, Zambezia, and 
Nampula provinces. Tourism operators will cater generally 
to high-end clientele, due to the expensive prices of 
international travel to Mozambique and within the country. 
The investors are looking to transform the military airport 
of Nacala into an international airport, according to the 
Minister. (COMMENT: Tourism development in northern 
Mozambique is a primary component of the GRM's Millennium 
Challenge Account (MCA) proposal. The Minister of Tourism 
likely is taking into account potential MCA investment in 
the above-mentioned figures. END COMMENT.) 
 
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TRANSPORTATION 
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5. (U) On December 16 the GRM, the World Bank, the 
Mozambique Ports and Railways Company (CFM), and the Beira 
Railways Company (CCFB) and the Indian firm Rites and Ircon 
signed credit agreements for the reconstruction of the Sena 
Railway Line and rehabilitation of parts of the Machipanda 
Railway Line (see reftel for further details). The World 
Bank will lend USD 104.5 million to the GRM for the 
reconstruction and rehabilitation of the railway lines. 
The World Bank will loan an additional USD 5.5 million to 
CFM to help build the parastatal's institutional capacity 
(training, management, etc). A third agreement was 
formalized between the Director of Rites and Ircon 
International and CFM, stating that Rites and Ircon, as the 
lead concessionaire to the Sena reconstruction effort, will 
invest USD 55 million. The Sena project calls for the 
restructuring of the entire Sena line, acquiring new 
locomotives and rolling stock, and installing a new 
communications and security system. Reconstruction of the 
line is expected to take three and a half years. (COMMENT: 
The Sena line is expected to play a vital role as a route 
for coal shipments when coalmines at the massive Moatize 
deposits are opened. END COMMENT) 
 
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INDUSTRY 
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6. (U) A new cement factory with the capacity to produce 35 
tons of cement per hour opened up in the northern port city 
of Nacala. The private investment, made by the ARJ Group 
Cement Nacala Lda, will employ 80-100 national and foreign 
workers. Construction of the factory began in 2002, and 
the total investment so far has been nearly USD 12 million. 
The factory, outfitted with modern equipment from Germany 
and India, is only the second cement factory to operate in 
northern Mozambique. With the increasing pace of 
construction in the northern provinces, the new factory 
comes as a welcome resource for builders and investors. 
 
7. (U) The Corridor Sands Project, operated by Western 
Mining Corporation (Australia), will begin construction of 
a titanium-smelting factory in Gaza province in early 2006. 
The mega- project will involve an investment of USD 500 
million for the initial production of some 400,000 tons of 
titanium dioxide slag per year. The project will require 
the relocation of over 4,000 people living in the area. 
Relocation efforts will begin in June 2005. 
 
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ENERGY 
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8. (U) The Cahora Bassa electricity network will extend to 
cover all of Nampula province, the country's most populous, 
in 2006. Mozambique Electricity (EDM) is lengthening the 
north-central electricity line and electrifying rural 
areas. Parts of Nampula already benefit from Cahora Bassa 
power, allowing hospitals and health centers to operate 24 
hours and night classes to take place at local schools. 
 
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MACROECONOMICS 
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9. (U) On December 30, the governor of the Central Bank, 
Adriano Maleiane, delivered an end-of-the-year statement on 
the performance of the Mozambican economy. GRM targets for 
2004 were an eight percent growth in the GDP and an 
inflation rate of 11 percent. The Central Bank estimates 
that the overall 2004 GDP growth rate will reach eight 
percent, helped by significant construction projects, such 
as the completion of railway lines linking major parts of 
the country, and the inclusion of mega-projects such as 
Mozal's aluminum smelter expansion and the Sasol natural 
gas pipeline. Recent projections indicate that the 2004 
inflation rate will register around 11 percent. Measured 
through November 2004, monetary expansion was 9.2 percent, 
against a target of 15 percent for 2004. Commercial 
interest rates by banks fell slightly, but still remain 
high, registering 24 percent in November 2004 (as compared 
to 28 percent in December 2003). Appreciation of the 
Mozambican currency, the metical, was 16.4 percent 
(measured through November 2004). The Current Account 
position improved by 37 percent compared to the same period 
in 2003. This was mainly the result of a significant 
increase in exportation of goods, whose value was more than 
USD 1 billion. The increase in imports was small. The 
strengthening of the Current Account is largely due to the 
expansion of Mozal and the exportation of natural gas from 
Mozambique to South Africa. Mozambique benefited from the 
cancellation of debt worth USD 331.7 million (measured 
through September 2004) principally reflecting Brazil's 
pardoning of debt through the Heavily Indebted Poor 
Countries (HIPC) initiative. The GRM's economic growth 
targets for 2005 are a GDP growth rate of eight percent, a 
single-digit inflation rate, monetary expansion of 14.5 
percent or less, and a 15 percent growth of credit in the 
economy (more information to be reported septel). 
DUDLEY