MOZAMBIQUE: FY 2004 BFIF COMMERCIAL OUTREACH REPORT

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