US embassy cable - 05MAPUTO1404

UNCLAS SECTION 01 OF 03 MAPUTO 001404 
 
SIPDIS 
 
SIPDIS 
AF/S FOR HTREGER AND JMALONEY 
PRETORIA FOR JRIPLEY 
JOHANNESBURG FCS FOR RDONOVAN, JVANRENSBURG 
USDOC FOR RTELCHIN 
MCC FOR SGAULL, TBRIGGS 
PASS USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: EAGR, ECON, EAID, EINV, ETRD, EMIN, ENRG, MZ 
SUBJECT: MOZAMBIQUE - SEPTEMBER ECONOMIC DIGEST 
 
REF: MAPUTO 1176 
 
MAPUTO 00001404  001.2 OF 003 
 
 
1. This is a brief summary of significant 
economic developments in Mozambique in September 2005.  We 
provide it as a supplement to our other reporting.  This 
issue of the Digest contains, mainly, information on new 
assistance flows.  The items discussed are as follows: 
 
-- USG Title I Grant 
-- Moma Mine Ahead of Schedule 
-- Credit Rating by Standard and Poors 
-- MCC Moving Forward 
-- French Provide Assistance on Water 
-- World Bank Grant 
-- Rural Credit Program Launched 
-- US Funds Feasibility Study for Lurio River Hydropower 
 
 
P.L. 480 TITLE I GRANT 
---------------------- 
 
2. On September 29 the US and Mozambique signed a new P.L. 480 
Title I agreement.  Under this agreement the US will 
provide 3,000 tons of crude vegetable oil, with a total value 
of USD 3.7 million (including the cost of transport).  The 
oil will be sold to local cooking oil producers and the 
proceeds used to finance programs designed to expand markets, 
improve the business environment and strengthen the capacity 
of local labor-intensive industries.  Three particular 
programs will benefit from this sale.  The first seeks to 
increase capacity within the Ministry of Industry and Trade 
to negotiate international trade agreement and ensure 
Mozambican produce access to export markets (USD 500,000). 
The second focuses on making Mozambican companies more 
competitive, reducing the cost of doing business and 
improving the overall business environment (USD 700,000). 
The third program (USD 452,000) finances economic, trade and 
agricultural scholarships at institutions in Mozambique, 
South Africa and the US. 
 
 
MOMA TITANIUM MINE AHEAD OF SCHEDULE 
------------------------------------ 
 
3. On September 21 Kenmare Resources announced that 
its multi-million dollar Moma Titanium Minerals Mine, in the 
northern province of Nampula, was then 41 percent complete. 
The current completion time frame is the fourth quarter of 
2006; however, according to Kenmare, construction was already 
six weeks ahead of schedule.  Once finished, Kenmare expects 
the Moma mine to produce annually 700,000 tons of ilmenite, 
60,000 tons of zircon and 17,000 tons of rutile for at least 
20 years.  In addition to employing more than 1,000 workers 
during the next construction phase, the Moma mine will create 
436 direct hire positions and approximately 1,500 ancillary 
jobs in the region.  The market price for zircon has 
increased USD 200 per ton since Kenmare drew up its original 
financial plan, leading to Kenmore's exploration for other 
profitable resources beyond the current mining area.  Once in 
production, the Moma mine could contribute up to 2.4 percent 
of Mozambique's Gross Domestic Product. 
 
 
S&P RATES MOZAMBIQUE "B" 
------------------------ 
 
4. On September 9 the US rating agency Standard and 
Poor's (S&P) announced its first credit rating for the 
government of Mozambique, giving it a "B."  S&P conducted 
the rating survey with funding provided by the United 
Nations Development Program (UNDP).  Mozambique's "B" 
rating is the same S&P gave to the governments of 
Madagascar and Burkina Faso.  According to S&P, 
Mozambique's "B" rating means that it is considered 
vulnerable to adverse conditions but has the current 
capacity to meet financial commitments.  S&P also declared 
Mozambique's outlook "positive," suggesting that it 
believes the credit rating could improve over the next two 
or three years.  Mozambique is only one of ten sub-Saharan 
 
MAPUTO 00001404  002.2 OF 003 
 
 
African governments with S&P credit ratings. 
 
 
MCC MOVING FORWARD 
------------------ 
 
5. On September 8 Mozambique took another step forward 
with the Millennium Challenge Corporation (MCC), when both 
parties signed a six million dollar "pre-compact" agreement. 
Under the agreement, MCC will finance feasibility and 
assessment studies of projects submitted by the government, 
in preparation for the signing an actual compact agreement. 
To date discussions have focused on a compact involving 
several hundred million dollars worth of assistance, targeted 
at northern Mozambique for water and sanitation projects and 
improving the business environment. 
 
 
FRENCH FINANCE WATER SUPPLY PROJECT 
----------------------------------- 
 
6. On September 16 the governor of the 
Mozambican central bank, Adriano Maleiane, and the French 
ambassador to Mozambique, Louise Avon, signed an agreement 
granting Mozambique seven million Euros (approximately 
8.4 million dollars) for a drinking water project 
in the Maputo suburbs. The current water system loses an 
estimated 15,000 cubic meters a day, and the new program 
hopes to reduce this loss, benefiting between 200,000 and 
300,000 consumers.  The government's Water Supply Investment 
and Assets Fund will manage the program, 
which will implement a sustainable management system of 
about 400 water sources.  The program focuses on needier 
consumers in the Maputo suburbs who are not included in the 
medium term plans of the Aguas de Mocambique.  According to 
the French embassy, the grant 
is France's contribution to help Mozambique meet 
the Millennium Development Goals in the area of water 
supply. 
 
 
ADDITIONAL WORLD BANK CREDIT APPROVED 
------------------------------------- 
 
7. On September 16 Mozambique and the World Bank 
signed a USD 120 million grant agreement, earmarked for 
poverty reduction initiatives (the World Bank's Executive 
Board agreed to the grant several days earlier).  At the 
agreement signing Gregor Binkert, chief economist at the 
World Bank mission in Maputo, credited the grant to ongoing 
Mozambican reforms.  The Minister of Planning and 
Development, Aiuba Cuereneia, promised that the government 
would continue focusing on infrastructures, agriculture, 
health and education.   The grant will be disbursed in two 
equal-sized USD 60 million tranches, one this year 
and the second in 2006.  To receive the second tranche,  the 
Mozambican government must meet a series of indicators, 
including final adoption of a new commercial code, reforms in 
the judicial system and, significantly, implementation of a 
procurement system in accordance with international standards. 
 
 
RURAL CREDIT PROGRAM STARTED 
---------------------------- 
 
8. On September 15 the Mozambican government announced 
the launching of a rural credit program, funded jointly by 
the International Fund for Agricultural Development (IFAD), 
the African Development Bank (ADB) and the government.  The 
program is budgeted at approximately USD 34 million.  Its aim 
is to provide credit to small companies and farmers in 
outlying rural areas through direct credit and "institutional 
strengthening of their activities," according to Mozambique's 
Planning Minister.  In its initial phase the program will 
focus on ten to fifteen 
percent of the 128 rural districts.  Ultimately, the 
government hopes the program will provide financing for 
125,000 new clients.  The Economic Rehabilitation Support 
Fund (FARE), supervised by the Ministry of Planning and 
 
MAPUTO 00001404  003.2 OF 003 
 
 
Development, will manage the fund. 
 
 
US TO SUPPORT FEASIBILITY STUDY OF LURIO RIVER DAMS 
--------------------------------------------- ------ 
 
9. On September 2 the Mozambican government signed 
a grant agreement with the United States Trade and 
Development Agency (TDA), under which TDA will provide 
$600,000 to finance a feasibility study for two hydroelectric 
dams on the Lurio river.  The Lurio forms the boundary 
between Nampula and Cabo Delgado provinces in the 
northernmost corner of the country.  The dams are expected to 
provide approximately 180 megawatts of power, which 
will be more than enough to supply the northern part of the 
country and enable Mozambique to export additional 
electricity from the giant Cahora Bassa dam on the Zambezi. 
With this plan Mozambique is attempting to address the 
region's predicted growth in energy demand by 2007.  Also 
part of the agreement, the United States Energy Association 
agreed to provide training to Electricidade de Mozambique, 
the national electricity company.  The first group of 
technicians from the United States will arrive in January 
2006. 
La Lime