MOZAMBIQUE - DECEMBER ECONOMIC WRAP-UP

UNCLAS SECTION 01 OF 03 MAPUTO 000001

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STATE FOR AF/S TREGER AND EB/TRA
PRETORIA FOR JRIPLEY
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E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
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