MOZAMBIQUE: JANUARY ECONOMIC DIGEST

UNCLAS SECTION 01 OF 02 MAPUTO 000230 SIPDIS SIPDIS AF/S - HTREGER JOHANNESBURG FSC FOR RDONOVAN JOHANNESBURG TDA FOR DSHUSTER USDOC FOR RTELCHIN MCC FOR SGAULL PASS USAID FOR AA/AFR AND AFR/SA E.O. 12958: N/A TAGS: ECON EAID EINV ETRD CH MZ SUBJECT: MOZAMBIQUE: JANUARY ECONOMIC DIGEST MAPUTO 00000230 001.2 OF 002 ¶1. This is a brief summary of significant economic developments in Mozambique during January 2006. We provide it as a supplement to our other reporting. The items discussed are: - Inflation Higher Than Expected - Government May Cancel Leases for Unused Land - Taking Longer Than Expected to Phase Out Leaded Petrol - Will the Chinese Own Part of Cahora Bassa? - Microsoft Meets Mozambique - "Made in Mozambique" Campaign Inflation Higher Than Expected -------------- ¶2. Despite the GRM,s target of a 2005 inflation rate between 7 and 8%, the accumulated inflation rate for 2005 was 14%. The discrepancy between projected and actual inflation is being blamed on significant increases late in the year in the cost of fuel and food. The government remains optimistic regarding 2006 inflation rates, projecting an increase of only 7%. Mozambique May Cancel Leases for Unused Land -------------- ¶3. Minster of Agriculture, Tomas Mandlate, issued an announcement in January that individuals who do not use the land granted to them should lose their tenure rights, as called for in the law on land. All land in Mozambique is owned by the GRM. Individuals obtain land use rights from the government - these leaseholds may be obtained for up to 49 years - but those leasing the land must make improvements within a specified timeframe. Mandlate spoke against those who receive a use-right but then do not make productive use of the land: "(T)hose who pay, but do nothing with their land, must lose their tenure rights, because the land can be redistributed to other citizens capable of making better use of this resource." Land redistribution and land rights are sensitive issues in Mozambique, and the private sector and donor communities are watching this issue closely. Taking Longer to Phase Out Leaded Petrol -------------- ¶4. The government of Mozambique originally planned to phase out leaded petrol in favor of unleaded fuel by January 2006. However Mozambique could not afford to clean out all tanks containing leaded petrol and is therefore diluting leaded petrol with the unleaded variety, for the time being. Officials now anticipate that all leaded fuel will be flushed from the system by March. As the result of the delays, Mozambique missed the end-2005 SADC (Southern African Development Community) target to phase out leaded petrol. Will the Chinese Own Part of Cahora Bassa Dam? -------------- ¶5. Local media are reporting that Geocapital, a Chinese company owned by Chinese businessman Stanley Ho, is interested in purchasing shares of HCB, which owns the Zambezi river Cahora Bassa dam. A draft agreement transferring control of HCB from Portugal to Mozambique, which is still under negotiation, calls for a payment of USD 950 million to Portugal by the end of 2006. While the first USD 250 million will come from HCB itself, there has been much speculation about how Mozambique would pay the remaining USD 700 million. The GRM currently insists that it will find the funds, but there have been increasingly frequent reports of interested third parties such as Stanley Ho/Geocapital, the South African electricity company Eskom and Brazilian investors wanting to be part of the deal. The framework agreement does allow for additional shareholders if both Portugal and Mozambique sell a third of their holdings. Meanwhile, the Energy Ministry continues to negotiate the agreement details with its Portuguese counterpart. The negotiations have fallen behind schedule; back in November both sides hoped to conclude them by the end of 2005. Microsoft Meets Mozambique MAPUTO 00000230 002.2 OF 002 -------------- ¶6. Minister of Science and Technology, Venancio Massingue and Ali Hoballah, Microsoft Regional Director for West, East and Central Africa signed an action plan at the beginning of January under which Mozambique will receive funding and computer products to assist with the government's computerization program. Under the plan, which is for the 2006-2007 period, Microsoft will donate nearly USD 500,000 worth of education/training, software, equipment, consultants and money. The goals of the plan include developing a strategic information and communication technologies plan for the education sector and local community centers, and developing computer solutions that support the government's provision of public services. "Made in Mozambique" Campaign -------------- ¶7. On January 16 the Ministry of Industry and Commerce launched its "Made in Mozambique" campaign. This is an effort to raise awareness of Mozambican goods in a market dominated by South African and other foreign imports. Faced with the eventual end of tariffs on trade among SADC nations (in 2015),Mozambique is attempting to boost its own industrial production and create a national market. Some businessmen objected to the use of the English language, arguing that the slogan should have been the Portuguese equivalent: "Produzido em Mocambique." La Lime