UNCLAS SECTION 01 OF 02 MAPUTO 001528

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
USDOC FOR RTELCHIN
MCC FOR SGAULL, TBRIGGS
USAID FOR AA/AFR AND AFR/SA

E.O. 12958: N/A
TAGS: EAGR EAID ECON EINV ETRD MZ
SUBJECT: MOZAMBIQUE - OCTOBER ECONOMIC DIGEST

REF: A. A) MAPUTO 1517


B. B) MAPUTO 1463

C. C) MAPUTO 866

MAPUTO 00001528 001.2 OF 002



1. This is a brief summary of significant economic
developments in Mozambique during October 2005. We provide
it as a supplement to our other reporting. The items
discussed are:


2. 800,000 people face food shortages due to drought

3. Water projects planned

4. Fuel prices rise

5. Deadline for overdue social security contributions

6. INSS Chairman resigns

7. Asian and European poultry imports banned

8. Germany and EU finance Inhambane development

9. French firm has invested USD 37 million in prawn farm


800,000 FACE FOOD SHORTAGES DUE TO DROUGHT
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2. On October 28 Mozambique's Food and Nutritional Security
Technical Secretariat (SETSAN) announced that 801,000
(about 4 percent of the population) faced the risk of
severe hunger until next March, when the next harvest is
expected, due to the prolonged drought over much of
Mozambique. This is a substantial increase from May, when
SETSAN estimated 428,000 faced food insecurity. The worst
affected areas of the country are in the south and center,
with Tete the most affected province; SETSAN's recent
survey counted 198,000 drought-affected people there.
After Tete, the southern provinces of Gaza and Inhambane,
with 146,000 and 119,000 drought-affected people
respectively, were the next worst off. In many rural
districts in these provinces food prices have risen by
30-100 percent. One contributing factor to water shortages
is that pumps and wells in many areas have not been
maintained; SETSAN found half of the pumps broken in some
areas. According to Prime Minister Diogo, the 2005 grain
harvest of 1.9 million tons was five percent below the 2004
harvest. See reftels A and B for additional information.

WATER PROJECTS PLANNED
--------------

3. The Public

Works Ministry is in the process of
finalizing contract negotiations for the construction of 20
small dams in Gaza, Inhambane, Sofala, Manica and Tete
provinces. The dams are intended to reduce the impact of
droughts in these drought-prone areas. The government
intends also to increase the number of Mozambicans with
access to safe drinking water and basic sanitation
services. According to the ministry, only 40% of rural and
36% of urban Mozambicans have access to clean drinking
water. The goal is to raise those numbers to 55% and 60%
over the next four years. Mozambique's Minister of Public
Works, Felicio Zacarias, made the announcement on October
24, at the inauguration of a rehabilitated water supply
system in the town of Namaacha, on the border with
Swaziland. The rehabilitation cost nearly USD 1.5 million,
partially funded with a World Bank loan and partially with
the government's own funds. The system now serves 18,000
Mozambicans in Namaacha and approximately 12,000 people in
Lomaasha, in Swaziland. A private operator, Aqua Gest, won
the public tender to manage the system on a five-year
contract.

FUEL PRICES RISE
--------------

4. After not adjusting fuel prices since June (see reftel
C), on October 20 the Mozambican government increased fuel
prices by up to 20 percent. The price of kerosene
increased the least - by only 9.7%, followed by diesel -
10.3%, LPG cooking gas - 11.6%, petrol - 16.9% and jet fuel
- 20%. Until this year, the government's practice had been
to evaluate fuel prices every month and adjust them when
the price of imports moved by more than three percent. In
the face of a strong upward trend in world fuel prices this
year, however, the GRM has delayed price increases, but has
now boosted them sharply to bring them in line with world
levels.

MAPUTO 00001528 002.2 OF 002



EMPLOYERS EVADING SOCIAL SECURITY OBLIGATIONS GIVEN UNTIL
MARCH 2006
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5. In an effort to collect USD 1.6 million in overdue
social security contributions, on October 31 the National
Social Security Institute (INSS) announced that employers
had until March of 2006 to make their owed payments. Of
the 16,384 companies registered with INSS in December 2004,
only 8,402 are current with contributions. As a result,
only 163,582 workers are currently eligible to draw
benefits out of the 542,582 workers registered under the
social security system. Companies that pay their social
security debts prior to March 2006 will only be charged
with paying ten percent of their debt interest. It is not
yet clear what will happen to those companies that refuse
to comply with the March deadline.

INSS CHAIRMAN RESIGNS
--------------

6. Meanwhile, on October 26 the chairman of the board of
INSS, Aguiar Mazula, resigned. The government has been
reshuffling senior management at INSS for the past several
months over mismanagement and corruption claims, beginning
with the sacking of the INSS Executive Director Elina Gomes
in August, and Mazula may have seen his dismissal coming,
too. Mazula held a number of prominent positions under
former President Chissano -- including Minister of State
Administration, Minister of Defense, and Minister of
Labor.

ASIAN AND EUROPEAN POULTRY IMPORTS BANNED DUE TO AVIAN FLU
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7. On October 27 Mozambican government livestock
authorities renewed their ban on Asian poultry imports and
extended this ban to imports from all European countries as
the result of recently recorded bird flu outbreaks. This
will not eliminate the possibility of migratory birds
carrying the virulent H5N1 virus to Mozambique, however.
For this reason, the National Livestock Directorate is
training agricultural workers to observe domestic poultry
for unusual die-offs. There is great concern that should
H5N1 spread to Southern Africa, the millions of individuals
living with immune systems compromised by HIV will increase
the likelihood that the virus will mutate into a form
transmittable from person to person.

GERMANY AND EU TO FINANCE INHAMBANE DEVELOPMENT
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8. On October 26 the European Commission announced in
Maputo that Germany and the EU will finance a USD 9.7
million rural development project in Inhambane province.
The project is in support of the GRM's stated goal of
decentralization in that it will create a "Rural
Development Investment Fund," which will be managed by the
Inhambane provincial government. Germany is contributing
three-fourths of the funding through the German Development
Bank, KFW. KFW completed a feasibility study for this
project in 2004. The purpose of the project is described
as poverty reduction in Inhambane through improved public,
social and economic infrastructures, and through the
strengthening of government and administrative structures.

FRENCH COMPANY, AQUAPESCA, HAS INVESTED USD 37 MILLION IN
PRAWN FARM
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9. Aquapesca, a French company, has invested approximately
USD 37 million over the past eight years in its prawn
aquaculture farm at Inhassunge in Zambezia province,
according to press reports on October 25. The prawn farm,
which started on a 20-hectare plot in 1998, now covers 320
hectares. Aquapesca has so far produced 300 tons of prawns
this year and hopes to expand production to 1,200 - 1,700
tons in 2007. The company employs 700 Mozambicans.
Dudley