MOZAMBIQUE - DECEMBER ECONOMIC DIGEST

UNCLAS SECTION 01 OF 02 MAPUTO 000038 SIPDIS SIPDIS AF/S FOR HTREGER AND JMALONEY JOHANNESBURG FSC FOR RDONOVAN JOHANNESBURG TDA FOR DSHUSTER USDOC FOR RTELCHIN MCC FOR SGAULL USAID FOR AA/AFR AND AFR/SA E.O. 12958: N/A TAGS: ECON EAID EINV ETRD MZ SUBJECT: MOZAMBIQUE - DECEMBER ECONOMIC DIGEST MAPUTO 00000038 001.2 OF 002 ¶1. This is a brief summary of significant economic developments in Mozambique during December 2005. We provide it as a supplement to our other reporting. The items discussed are: 2 Mozambique Signs Preferential Trade Agreement With Malawi 3 IMF Approves USD 2.3 Million Disbursement Under the Three-Year PRGF Arrangement 4 IMF Forgives 100% of Mozambican Debt Under Multilateral Debt Relief Initiative 5-6 Construction on Limpopo Bridge Begins and Zambezi Bridge Funds Secured 7 Mozambican Miner Numbers Continue to Decline 8 Assembly of the Republic Passes 2006 State Budget, 142-80, and New Commercial Code Mozambique Signs Preferential Trade Agreement With Malawi -------------- -------------- ¶2. On December 28 Mozambique and Malawi entered into a preferential trade agreement. This agreement is an update of a similar agreement signed by the Portuguese colonial authorities with Malawi prior to Mozambican independence. It allows for duty-free trade in goods originating in the two countries, excluding beer, certain soft drinks, tobacco, sugar, vegetable oil, chickens and eggs, office equipment, petroleum products, weapons, ammunition and explosives. The Mozambique-Malawi FTA has simpler rules of origin than those outlined in the Southern African Development Community (SADC) Trade Protocol. Mozambique is not required under the SADC Trade Protocol to move to a free trade regime with other SADC countries until 2015. Mozambique's most significant bilateral trade relationship is with South Africa. IMF Approves 2.3 illion USD Disbursement Under the Three-Year PRG Arrangement -------------- -------------- ¶3. On December 19, 2005 the Executive Board of the International Monetay Fund (IMF) completed its third review of Mozambque's economic performance under the current Povrty Reduction and Growth Facility (PGRF) arrangemet, approved by the Executive Board of the IMF onJune 21, 2004. This enabled a disbursement of aproximately USD 2.3 million by the IMFto the Government of Mozambique, bringing total disbursements under PGRF to approximaely USD 9.4 million. IMF Forgives 100% of Mozamican Debt Under Multilateral Debt Relief Initiatve -------------- -------------- ¶4. In December 2005 the IMF forgve 100% of Mozambique's debt under the Multilateal Debt Relief Initiative (MDRI) that resulted frm last year's G8 Summit. The relief is on all rmaining debt incurred by Mozambique to the IMF prir to January 1, 2005, amounting to USD 119 millin. This is in addition to approximately USD 34 illion remaining in Heavily Indebted Poor Countries (HIPC) Initiative relief. The new debt relief will be effective as of arly January 2006. Construction on Limpopo Bridg Begins and Zambezi Bridge Funds Secured -------------- -------------- ¶5. On December 23 President Guebuza laid the first stone for construction of a new bridge over the Limpopo river in the Gaza province. The new bridge will be a two-lane concrete bridge approximately nine meters in width and 500 meters in length. The project will cost about USD 14.4 million, and is financed by the Nordic Development Fund and the Mozambican government. ¶6. Earlier in the month, the Mozambican and Italian governments finalized an agreement whereby the Italian government will grant approximately USD 23 million to finance construction of a new bridge over the Zambezi river. This grant is in addition to 24 million Euros contributed by the MAPUTO 00000038 002.2 OF 002 European Union and 21 million Euros by the Swedish government. Also, the Japanese government has contributed nine million USD for environmental impact studies and the resettlement of people displaced by construction. The new bridge will replace the current Caia-Chimuara ferry service and thereby link the country's main north-south highway. Number of Mozambican Miners in SA Continues to Decline -------------- -------------- ¶7. Mozambican miners in South Africa, who for over a hundred years have been providing significant remittances to their families back in Gaza and Inhambane provinces, over the past decade have seen their numbers drop by 16%, from 55,000 in 1996 to 46,000 in 2005. Influencing this decline is South Africa's 2004 immigration law (which limits the number of foreign workers any given company can employ),an aging workforce and an overall decline in gold mining activity. Long-term forecasts suggest that unless deeper shafts are explored, South Africa's gold reserves may last only until ¶2015. The growing number of platinum mines in South Africa are only expected to absorb a small percentage of Mozambican miners. Assembly of the Republic Passes 2006 State Budget -- 142 votes in favor, 80 votes opposed -- and New Commercial Code -------------- -------------- ¶8. The Assembly of the Republic, the Mozambican parliament, passed the 2006 state budget on December 16 by a vote of 142 to 80. The vote represents a clean split between the ruling Frelimo party (in favor) and the opposition Renamo-Electoral Union coalition (wholly opposed). In addition, the Gubueza government passed a new Commercial Code at the end of December. The adoption of the revised Commercial Code is generally seen as very positive, since the original Commercial Code was obsolete and interventionist, with clauses dating from the 19th century. It did not provide a foundation for modern commerce or resolution of modern commercial disputes. Dudley