The Shire-Zambezi Waterway: God's Highway or Bingu's

UNCLAS SECTION 01 OF 03 LILONGWE 000914 SIPDIS STATE FOR AF/S, AF/EPS, INR/AA USAID FOR AFR/SA TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA PRETORIA FOR USTDA SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EAID EWWT ELTN KMCA PGOV MI SUBJECT: The Shire-Zambezi Waterway: God's Highway or Bingu's Folly? LILONGWE 00000914 001.2 OF 003 ¶1. (U) Summary: President Bingu wa Mutharika is strongly pushing the idea of re-opening the Shire and Zambezi rivers to commercial navigation, to help address Malawi's serious problem of limited and expensive transportation links to global markets. A recent EU-funded pre-feasibility study offers possible options for use of the waterway, but also raises serious doubts about its economic viability. The scheme is highly political, and not without controversy in Malawi. It is unclear whether the project would actually attract paying customers. End summary. Malawi's Transport Problem -------------- ¶2. (U) Soon after taking office in 2004, President Mutharika began to promote the idea of re-opening a water route from Malawi to the Indian Ocean, as an alternative transportation corridor to access global markets. High transportation costs are Malawi's single biggest investment constraint, and the number-one complaint of both importers and exporters. Transportation adds at least fifty percent to the cost of most imports, and for exporters, Malawi's advantage as a low-cost producer is offset by the very high expense of getting goods out of the country. President Mutharika's economic growth plan centers around stimulating exports, but that will remain a distant goal if Malawi cannot improve its transportation links. ¶3. (U) Malawi's two former rail links to the outside world were destroyed in the Mozambican civil war, and only one line-- the Nacala Corridor-- has recently begun to operate again at limited capacity. The vast majority of the country's goods move by truck to and from the ports of Beira, Durban and Dar es Salaam. While highly flexible and reliable, trucking is the most costly transport option, and recent world oil price increases have made it even more so. The country's limited trucking fleet cannot cope with the seasonal demands of large agricultural exporters such as the tobacco industry, and shippers often complain of delays because not enough trucks are available during peak times. The shortage of trucks, along with regulation that protects local truckers from foreign competition, combine to give Malawi the highest transportation costs in the southern African region. A Natural Route -------------- ¶4. (U) President Mutharika's answer to this problem is the Shire-Zambezi Waterway, a route by which export goods would move from the town of Nsanje in far southern Malawi down the Shire River into Mozambique, then into the Zambezi River and down to the Indian Ocean. The distance from Nsanje to the mouth of the Zambezi at Chinde, Mozambique is 325 kilometers, making the waterway Malawi's closest connection to the Indian Ocean. ¶5. (U) British explorer and missionary David Livingstone used the Shire-Zambezi route on his explorations of the region in the 1850s, calling it "God's Highway into Africa." In the early 20th century, British colonials plied the route with shallow-draft paddle steamers which remained in operation until the 1950s. Up to the late 1980s, small barges were used to export molasses from a large government-owned sugar estate in southern Malawi. Like many of Malawi's ailing parastatal companies, that estate virtually collapsed in the early 1990s, and the river shipments ceased. The estate was later privatized and sold to South African sugar giant Illovo, which today ships its product by road and rail. An Intriguing Idea, but Many Problems -------------- ¶6. (U) A recently released pre-feasibility study funded by the European Union expresses some serious reservations about the project and calls for more extensive research, but recommends two possible options for use of the waterway. The more modest of the two options advocates the use of pontoon barges that could carry up to sixty 20-foot containers between Nsanje and Chinde, at the mouth of the Zambezi on the Indian Ocean. This option would require construction of a small port at Chinde so that containers could be transferred from the pontoons to larger ships that would carry the cargo to Beira or Durban. Dredging would be required at certain points in the Shire and near the Zambezi mouth in order to make the route passable. The estimated startup cost for this option is approximately US$17 million. ¶7. (U) The second option recommends the use of larger coastal vessels that could carry 150 containers through the waterway and down the Indian Ocean coast all the way to Beira, which lies LILONGWE 00000914 002.2 OF 003 approximately 200 km south of the Zambezi mouth. From Beira the cargo would be transferred to larger vessels that would carry it to Durban. This option would require US$36 million to start, in addition to several million dollars annually of dredging to keep the channel navigable for the larger vessels. ¶8. (U) Both scenarios present some significant administrative and logistical problems. Since most of the waterway lies within Mozambique, that government's cooperation in the project is essential. Aside from the construction of a port at Chinde for the first option, both options envision significant dredging operations and ongoing administration of the waterway. Although Malawian officials have discussed the plan with their Mozambican counterparts, the latter have not strongly endorsed the idea. On the contrary, Mozambican officials appear to be much more interested in promoting rail and road corridors, in particular the Sena rail line that runs from the Moatize coal fields near Malawi's southern border down to the port of Beira. ¶9. (U) Another problem is the isolation of Nsanje, the tiny town that would serve as the northern terminus of the waterway. Nsanje lies about three hours south by road from Malawi's commercial capital Blantyre. About 100 km of that road is rough unpaved surface, and would require upgrading to handle cargo to and from the Nsanje port. The rail link with Nsanje was cut several years ago after a flood that shifted the course of the Shire River and washed away large sections of track. Much of the line has not been used since the late 1990s, and over 60 km would require rehabilitation. The entire Lower Shire Valley area north of Nsanje is prone to significant flooding every rainy season, and the town is sometimes cut off from the rest of the country. On top of that, the Shire River is prone to significant variations in water level, due to seismic activity in Lake Malawi, which sits directly in the East African Great Rift Valley. During one period in the 1920s the river level dropped precipitously and the Shire actually dried up in various locations for a period of several years. While unusual, such an event cannot be ruled out in the future. ¶10. (U) In addition to Mother Nature's challenges, there are also man-made difficulties. Malawi has suffered serious deforestation in the past 15 years, and the resulting siltation of its rivers, including the Shire, will likely require ever-increasing amounts of dredging to keep navigation channels open. Local agricultural experts often remark that Malawi's largest export is its soil, much of which is washing down the Shire. That problem is not likely to improve soon. ¶11. (U) Finally, the inter-modal concept of the scheme, in which cargo would be containerized and moved by road or rail to Nsanje for transfer to watercraft, will be naturally more expensive and prone to delay than single-mode transport such as rail or truck. Full Steam Ahead, Despite Doubts -------------- ¶12. (U) Despite these clear drawbacks, President Mutharika is determined to forge ahead with the project. In October 2005 he held a groundbreaking ceremony at Nsanje and ordered the initial excavation of three large pits next to the river that may eventually serve as berths for river craft (photos of the site may be seen on the Mission Lilongwe State/USAID intranet website at http://web.lilongwe.state.gov/shirezambezi.ht m). Since that time, Mutharika has mentioned the waterway in virtually every public speech, no matter what the occasion. The GOM held a "sensitization" workshop in June, and has promised to organize a donor conference to solicit aid for the project. ¶13. (U) Mutharika is working hard to sell the idea to his African colleagues, having presented a concept paper to an African Union forum in April 2005, and also to NEPAD for inclusion in its Framework for Sustainable Regional Development. Mutharika last week took visiting AU Chairman Konare by helicopter to Nsanje to visit the site of the port. The president pitched the project to the Japanese government during an official visit to Tokyo earlier this year, and he has garnered limited financial support from the EU to study the idea. At this point no other donors have shown interest. The GOM hopes to attract private investment as well, but the business community is taking a wait-and-see attitude. ¶14. (U) The project has generated some controversy. Earlier this month civil society organizations, the media and some politicians sharply criticized Mutharika for diverting funds to the waterway project that had been previously earmarked for construction of a LILONGWE 00000914 003.2 OF 003 road in the northern region. Mutharika faces an uphill battle convincing the public to invest Malawi's limited resources on a project of uncertain value such as the waterway, compared to the paving of a road which has a clear and immediate benefit. If He Builds It, Will They Come? -------------- ¶15. (U) Even if Mutharika secures the necessary donor funding for this project (very much an open question),the GOM runs the risk of creating a white elephant. Government statements since the release of the pre-feasibility study have glossed over the significant reservations raised in the report, which is peppered with expressions of doubt about the project's viability. The introduction says that "freight rates necessary for a sustainable development of a dedicated shipping venture would tend to be unattractive to potential clients in comparison to present-day trucking." The report quotes a 2004 study by an American consulting firm that "river transportation for Malawi traffic of sugar, tobacco and cotton in any reasonable quantity would be considered less attractive than either rail or road transportation... river transportation is likely to be uncompetitive." ¶16. (U) The waterway will face direct competition from a project to rehabilitate the Sena railway line in Mozambique, which runs from near Malawi's southern border down to the port of Beira. The Sena line is currently being renovated by an Indian consortium with funding from the World Bank, and the project will also have private sector investment from Brazilian mining firm CVRD, which will use the line to move coal from its concession at Moatize near Tete in northwestern Mozambique. It would be a fairly straightforward project to extend the Sena line into Malawi, giving the country a direct rail link to Beira that would be faster and cheaper than the waterway. ¶17. (U) It appears that the GOM has not surveyed the local market to determine who might actually use the waterway. Most business people with whom we have spoken have a vague awareness of the project, but are decidedly skeptical about the government's ability to deliver. A recent visit with managers of the Illovo sugar estate north of Nsanje (the project's largest potential customer) revealed that no one from the government has approached the company about using the waterway. Illovo is interested in the project, but would prefer to use the Sena line to ship directly to Beira by rail, if that extension were built. The waterway will face a tough challenge in convincing shippers to change their current modes of transport. The American-owned operators of the Nacala Corridor rail line, Central East Africa Railways, have struggled to gain new customers because of fears over reliability, even though the cost of shipping by rail is less than by truck. ¶18. (SBU) The Shire-Zambezi Waterway is clearly a project that is close to President Mutharika's heart, and he sees it as an important legacy of his presidency. Like many of his other reforms, Mutharika is promoting the resurrection of the waterway as a return to what worked in the past, during Malawi's perceived era of prosperity and efficiency. Mutharika may succeed in realizing his dream of rebuilding "God's Highway," but the reality of the market will decide if his investment will pay off. EASTHAM