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
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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

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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

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Development, will manage the fund.


US TO SUPPORT FEASIBILITY STUDY OF LURIO RIVER DAMS
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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