MARCH MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE

UNCLAS SECTION 01 OF 03 MAPUTO 000505

SIPDIS
STATE FOR AF/S
PRETORIA FOR JRIPLEY
JOHANNESBURG FOR RLO - BNUELING, FCS - WCENTER
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E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MARCH MONTHLY ECONOMIC WRAP-UP: MOZAMBIQUE

REF: MAPUTO 00455

Sensitive But Unclassified - Protect Accordingly

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FOREIGN INVESTMENT
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1. (U) Mineral Resources Survey: The GRM signed an agreement
with a South African firm, Fugro Airborne Surveys, to
undertake aerial surveys in the northern and central
provinces of Zambezia, Tete, Niassa, and Cabo Delgado, as
reported by Noticias, the daily newspaper. The objective of
the surveys is to collect information on the country's
geological potential. Fugro will overfly the area using low-
level remote sensing technology to detect geological pulses.
Similar surveys have already been completed in Mozambique's
southern provinces. Total investment in the project is
around $33 million, co-financed by the World Bank, the
African Development Bank, the Nordic Development Fund, the
South African Government, and the GRM. The new survey
should be completed by March 2005 and final results of the
country's geological mapping are expected by late 2006.
Mining of precious stones is already underway in Niassa
where Tanzanians are involved in mine exploration.

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MACROECONOMICS
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2. (U) World Band/IMF Joint Staff Assessment: A team from
the World Bank and the IMF simultaneously conducted the
annual Joint Staff Assessment (JSA) of Mozambique's progress
in implementing the GRM's Action Plan for the Reduction of
Absolute Poverty (PARPA). The JSA concluded that performance
is "satisfactory". The IMF and the GRM negotiated terms for
a new Poverty Reduction and Growth Facility [PRGF]
arrangement and general agreement was reached; yet some
details remain to be worked out. The new PRGF will support
Mozambique's quest for poverty reduction, economic growth
and stability. The PRGF is designed to maintain monetary
and fiscal discipline while allowing Mozambique to continue
its rapid GDP growth path with a comfortable external sector
situation (REFTEL).


3. (U) Poverty Review: Recently reported results from the
2002/3 Household Survey, completed by the National
Statistics Institute (INE),indicate that the poverty
incidence in Mozambique has dropped to 54.1% in 2003, down
from 70% in 1997. These numbers demonstrate that Mozambique
is surpassing its poverty reduction targets as benchmarked
by the GRM's Action Plan for the Reduction of Absolute
Poverty (PARPA),which estimated poverty to drop to 60% by

2005. Revealing the results in front of Parliament, Prime
Minister and Minister of Planning and Finance, Luisa Diogo,
said these numbers and recent demography and health surveys
also undertaken by INE indicate that Mozambique is "on the
right path". According to Diogo, the "fundamental
instrument" for poverty reduction is education and since
1999, expansion in primary and secondary education has
vastly surpassed PARPA targets. Based on survey results,
illiteracy has fallen from 60.5% in 1997 to 53.6% in 2003.
The Minister presented a further challenge before
Parliament, saying "We hope to cut the illiteracy rate to
50% this year (2004)". In health care statistics, the
building of new rural hospitals and health units contributed
to a rise in the number of people who could reach a health
care center in less than an hour, from 40% in 1997 to 54% in

2003. The expanded vaccination program for childbearing
women and children and an insecticide approach to preventing
malaria has contributed to significant health gains.
Additionally, the GRM has been active in the struggle
against HIV/AIDS as 43 VCT centers were opened in 2003 and
more than 200,000 patients used counseling and testing
services.

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PORTS, ROADS, AND RAILWAYS
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4. (SBU) Sena Line: The US-Mozambique Chamber of Commerce
hosted a lunch with guest speaker Minister of Transportation
Tomas Salomao this month. Salamao's speech to the business
audience focused on reconstruction of the Sena Railway Line,
a top GRM initiative and major infrastructure project,
valued at $100 million. The Minister emphasized that
rehabilitation of the line is important for development of
the Zambeze River Valley and valuable to resource
exploration and exportation opportunities in the area,
namely of coal and sugar. Salomao admitted that the project
would take time once the tender is awarded, estimating three
and a half years for full completion. The GRM received three
bids on line reconstruction in January 2004. The candidates
have been scaled down to two, a Chinese and an Indian firm.
The GRM's plan is to award the project and appeal to the
World Bank for project financing. There continues to be US
interest in exploring the possibility of barging down the
Zambeze River, achieving coal exportation differently. This
interest is meeting heavy GRM resistance, as the Sena line
is a highly political issue that will go forward regardless
of its economic viability, unless, of course, the World Bank
refuses financing.

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TOURISM
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5. (U) New Tourism Law: The Mozambican Parliament passed the
first reading of a bill to regulate the tourism industry.
Tourism Minister and former businessman, Fernando Sumbana,
described tourism as a sector "responsible for rapid
economic and social development" and a "fundamental
instrument in the struggle for poverty reduction". A visibly
growing industry in Mozambique, tourism is becoming more and
more important to the national economy by attracting foreign
investment, creating employment, and developing local
infrastructure. The current bill intends to ensure that
Mozambique's tourism potential is used in a rational and
sustainable manner. It requires that tourist operators fix
prices in the local currency (most prices are currently
quoted in US dollars),properly insure resorts, and make
provisions for disabled tourists. Additionally, it allows
for tourists to formally lodge complaints and requires that
operators answer in a timely and appropriate manner. The GRM
will charge fees for licensing tourist activities, but the
details of this levy are not yet available.


6. (SBU) COMMENT: The GRM is putting significant effort into
creating an environment for tourism growth and development,
as they see tourism growth as a key to reducing absolute
poverty in line with the PARPA. USAID is in the process of
creating a six-year strategy for tourism development in
Mozambique and has reviewed tourism destinations in the
north, central, and southern regions. In meetings with
Minister Sumbana, there seems to be agreement that the North
is a good environment for USAID tourism investment because
of the range of possible tourist destinations (Lake Niassa,
the Niassa Reserve, Ilha de Mozambique, Nacala, Pemba, the
Quirimbas, and Ibo Island) and the relatively free and
unpoliticized regulatory environment. Large challenges
remain for tourism attraction in Mozambique: poor
infrastructure, a single air carrier, crime, the expense of
reaching tourist destinations, and for operators, lack of
clear land titles and skilled labor. END COMMENT.

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ENERGY
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7. (U) Portuguese-Mozambican Talks on Dam Dispute: The Prime
Minister of Portugal, Durao Barroso, made an official visit
to Mozambique in March. One of the prime discussion pieces
during this visit was the question of Cahora Bassa Dam
ownership. The GRM, as stated by President Chissano on March
29, would like to obtain control over the dam. In the
current arrangement, Hidroelectrica Cahora Bassa (HCB),82%
Portuguese-owned and 18% Mozambican-owned, maintains
ownership and operation of the dam, which supplies a
majority of its hydropower to South Africa's Eskom. Portugal
has indicated that it is ready to sell some or all of its
shares in HCB, as long as a reasonable agreement is reached.
Although ranked by KPMG Consulting as the second-largest
revenue-producing firm in Mozambique for 2001 and 2002, HCB
has always operated in a state of debt (owed to the
Portuguese Treasury). Dam operation is highly expensive, and
until last month, Eskom was paying absurdly low prices for
the hydropower. With the new tripartite agreement between
Mozambique, Portugal, and South Africa (signed in February
2004) South Africa will be paying higher tariffs for
electricity, allowing HCB to operate with increased capital.
During Barroso's visit, President Chissano also made a pitch
to the Portuguese Government for further debt relief. If HCB
ownership turns over to Mozambique, Mozambique would no
doubt like to see Portugal relieve HCB debt owed to the
Portuguese Treasury.


8. (U) Energy Sector: According to facts presented at an
Electricity and Mining Seminar in Maputo by the National
Director of Energy, Pascoal Bacela, Mozambique has the
lowest level of domestic energy consumption in all of
Southern Africa. Only seven percent of the population has
access to electricity, which corresponds to about 250,000
consumers. Furthermore, eighty percent of consumers live in
rural areas. Director Bacela presented energy sector
opportunities for private investment and encouraged
investors to take advantage of current hydropower projects,
such as the Mpanda Mkuwa and Cahorra Bassa Dam, to pursue
opportunities in electricity distribution. Currently, the
GRM is completing distribution of energy to all provincial
capitals by using hydropower coming from Cahora Bassa.
Bacela indicated that the GRM is interested in continuing to
use its hydropower resources and explore natural gas and
steam coal energy options.
LA LIME