MOZAMBIQUE: JANUARY ECONOMIC DIGEST

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SUBJECT: MOZAMBIQUE: JANUARY ECONOMIC DIGEST

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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
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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
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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
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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?
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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

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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
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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