MOZAMBIQUE: MAY ECONOMIC DIGEST

UNCLAS SECTION 01 OF 02 MAPUTO 000661

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


MAPUTO 00000661 001.2 OF 002



1. This is a brief summary of significant economic
developments in Mozambique during May 2006. We provide it
as a supplement to our other reporting. The items discussed
are:

-- Mozambique Misses First Quarter Revenue Targets
-- Donors Pledge USD 595 Million for 2007 State Budget
-- USAID Supports Mozambique's Tourism Sector
-- Indian Government Extends Line of Credit
-- Rehabilitating Mozambican Airports
-- Mozambique Leaf Tobacco Opens Processing Plant in Tete

Mozambique Misses First Quarter Revenue Targets
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2. On May 12 Mozambican Minister of Finance, Manuel Chang,
announced that revenue collected by the Mozambican
government in the first quarter of 2006 fell short of its
target. Chang stated that Q1 revenue amounted to 5,166.3
billion meticais (approximately USD 194 million),only 94.6
percent of the target for the quarter. Of the total sum,
4,580.8 billion meticais (approximately USD 172 million) was
derived from tax revenue, which represents 98.5 percent of
the first quarter target. Despite the shortfall, Chang was
optimistic that corrective measures could be taken to ensure
the deficit would be made up later in the year.

Donors Pledge USD 595 Million for 2007 State Budget
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3. On May 11 the 18 donors and international agencies, known
collectively as the "Program Aid Partners" announced that
they would grant USD 595 million in direct support for
Mozambique's 2007 State Budget. This figure amounts to a
real increase of USD 44 million over contributions made for
the 2006 budget. The African Development Bank joined the
donor group this year, pledging USD 90 million in direct
budgetary support -- USD 60 million for this year and USD 30
million for 2007.


4. Of the total funds, USD 372 million will go directly to
the State Budget and has not been assigned to any project or
sector. The remaining funds are targeted at specific
sectors, as follows -- USD 56 million for education, USD 38
million for agricultural development, USD 89 million for
health, USD 36 million for roads, and USD 5 million for
water supply. According to Mozambique's Minister of
Finance, Manuel Chang, 48 percent of the current State
Budget comes from direct foreign aid.

USAID Supports Mozambique's Tourism Sector
--------------


5. The US Agency for International Development (USAID) has
granted Mozambique USD 5.5 million for the development of
tourism in the northern Mozambican provinces of Nampula,
Cabo Delgado and Niassa. The three-year project was
launched in Pemba, the Cabo Delgado provincial capital, by
Tourism Minister Fernando Sumbana and USAID Director Jay
Knott. The program seeks to use tourism as a tool for
environmental preservation and for overall economic
development in Mozambique, as well as to support the GRM's
vision of making Mozambique "the most vibrant tourist
destination in Africa." The project is expected to attract
private sector investment, while also contributing to
professional training and improvement of tourism sector
policies. (Note: According to figures released on May 12 by
the Mozambican Tourism Promotion Board, the Mozambican
tourism sector is expected to net more than USD 120 million
in 2006. Revenue for 2005 reached approximately USD 100
million, accounting for 2.4 percent of the country's gross
domestic product.)

Indian Government Offers Line of Credit
--------------


6. On May 22 the Indian government pledged to open a line of
credit, in the near future, worth USD 35 million. The
announcement was made by the outgoing Indian High
Commissioner to Mozambique, Upendra Baro, during his
farewell meeting with President Guebuza. A Mozambican
delegation is to visit India to discuss the mechanisms for

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an agreement. Baro said that during his two and a half year
tenure in Mozambique the Indian and Mozambican governments
had cooperated closely on the transportation issues, with
India disbursing USD 20 million to the railway sector.

Rehabilitating Mozambican Airports
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7. The President of Mozambican Airport Company (ADM),
Dionisio Cambaza, has announced plans to invest USD 21
million over the next three years on the refurbishing and
modernization of the airports in Beira, Quelimane and Tete.
The rehabilitation project will be financed by the
Mozambican government and Danish cooperation (DANIDA),
according to Cambaza. The project includes repaving runways
and installing luminous signaling systems at the airports in
Beira and Quelimane, as well as the installation of an
airborne instrument landing system (ILS),firefighting
vehicles, generators, and communication and safety
equipment.


8. Cambaza also stated that ADM had recently selected seven
bids for the refurbishment and extension of Maputo
International Airport. Though the names of the bidders have
not been made public, Cambaza told the Embassy Commercial
Specialist during a May 24 meeting that bids had come from
Chinese, Portuguese, Brazilian and French companies. The
final selection is expected in late September or early
October, with construction targeted to begin in January

2007. The Maputo airport project will include modernization
of the airport, construction of a VIP pavilion, a new
control tower, repair and extension of the cargo terminal,
as well as refurbishing of access roads.

Mozambique Leaf Tobacco Opens Processing Plant in Tete;
Alliance One Announced Its Exit
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9. On May 7 Mozambican President Armando Guebuza inaugurated
the country's first tobacco processing plant, located in
Mozambique's Tete province. The plant, built by Mozambique
Leaf Tobacco, a subsidiary of the US-based Universal Leaf
Africa Company, hopes to process and export 24,000 tons of
tobacco this year (estimated export value of USD 50
million). Its installed capacity is 50,000 tons of tobacco
yearly. The unit was built at an estimated cost of USD 55
million.


10. At the same time, another US company and the other
dominant player in the tobacco industry here, Alliance One,
announced it was pulling out of Mozambique as a result of
losing its buying concession in the tobacco-rich district of
Chifunde, in Tete province. Alliance One has filed a
political risk insurance claim for the closing of its
Mozambique operations.


11. Note: Mozambique is second only to Malawi as Africa's
largest Burley variety tobacco producer. Tobacco, together
with cotton and cashew nuts, is one of Mozambique's main
agricultural export products and sources of foreign
currency.

LA LIME