Mozambique - January Economic Digest

UNCLAS SECTION 01 OF 03 MAPUTO 000198

SIPDIS

SIPDIS

AF/S FOR HTREGER AND CKARBER
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
USDOC FOR RTELCHIN
MCC FOR SGAULL
USAID FOR AFR/SA

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: Mozambique - January Economic Digest


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1. This is a brief summary of significant economic
developments in Mozambique during January 2007. We provide
it as a supplement to our other reporting. The items
discussed are:

-- World Bank Approves Loan Support for PARPA II

-- World Bank to Support ProMaputo via IDA Credit

-- SA Sugar Firm Plans Expansion of Sugar Production in
Mozambique

-- Old Metical No Longer Legal Currency, Still Circulating

-- 2006 Brought Large Increase in IPR Seizures

-- Customs Revenues Exceeded 2006 Projections


World Bank Approves Loan Support for PARPA II
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1. On January 25 the World Bank Board of Executive
Directors approved an International Development Association
(IDA) credit of USD 70 million under the Third Poverty
Reduction Support Credit (PRSC 3). The PRSC 3 begins a new
series of credits designed to support implementation of
Mozambique's Second Action Plan for Reduction of Absolute
Poverty (PARPA II). This IDA credit will be disbursed
against the upfront completion of a number of specific
reforms agreed upon by the Government of Mozambique and the
18 external partners (G18) providing general budget support.
(Note: The USG does not provide general budget support, but
participates in some G-18 working groups. End note.)


2. The PRSC series focuses first on key constraints in
cross-cutting areas such as public financial management and
the business environment. It then develops to support
decentralization and shared growth. According to the World
Bank, the new PRSC series will specifically support all of
the following: 1) Macroeconomic management by consolidating
and deepening institutional reforms; 2) Reforms in the
governance area by supporting efforts to enhance public
investments and service delivery at the provincial and
district level, and by supporting public sector reform; and
3) Economic development by improving the business
environment, removing constraints and promoting agricultural
growth. Mozambique's PARPA II is built around the three
pillars of Governance, Human Capital and Economic
Development, and is the GRM's five-year operational plan
(2006-2010).


World Bank to Support ProMaputo via IDA Credit
-------------- -


3. On January 25, the World Bank Board of Executive
Directors approved an International Development Association
(IDA) credit of USD 30 million to support implementation of
the Maputo Municipal Development Program (ProMaputo).
According to the World Bank, this IDA credit is for the
Phase I (three years) of the program. IDA contributions for
the second phase will be defined at a later state and will
be subject to Phase I key objectives being met. ProMaputo
is designed to guarantee ownership, commitment and
sustainability, with implementation capacity falling within
the structure of the municipality and under the direct
leadership of the mayor of Maputo.


4. The first phase of ProMaputo contains three components.
The first component, Institutional Development and Municipal
Governance, focuses on the municipality's internal processes
for service delivery; improving the performance of the
municipality's functional units; and improving governance.
The second component, Municipal Finance, will improve the
municipal public finance systems and enhance the budget
planning, execution, and control functions. The final
component, Planning, Infrastructure Rehabilitation and
Service Delivery Improvements, seeks to support urban
planning and target investment to improve and rehabilitate
critical urban services, including roads and drainage, solid
waste management, street lighting and cemetery construction.

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5. The first phase of ProMaputo is budgeted at USD 43
million. In addition to the IDA financing, the project will
receive USD 6.5 million from the Central Government and USD
6.5 million from the municipality's own revenues generated
through the reform process.

SA Sugar Firm Plans Expansion of Sugar Production in
Mozambique
-------------- --------------


6. The South African aluminum and sugar company Tongaat-
Hulett Group (TH) announced on January 25 that it plans to
expand sugar production in Mozambique, more than doubling
its production by 2009. (Note: TH's sugarcane fields are
responsible for roughly half of Mozambique's total sugar
production. End note.) The expansion, which will cost an
estimated USD 180 million, positions TH to take advantage of
Mozambique's duty and quota free access to the European
Union (EU) in 2009. This is when EU markets will open up to
Least Developed Countries (LDC) producers. TH projects the
cash cost for producing sugar in Mozambique to remain around
8.5 cents per pound; the EU promises that sugar prices will
remain fixed at 19.6 cents per pound from 2009 until 2015.


7. TH plans to expand both of its Mozambican operations.
The majority of the investment, approximately USD 166
million, will go towards the company's operation at
Xinavane, in Maputo province. New equipment and an
additional 6,500 hectares of sugar cane will take the annual
cane crushed at Xinavane from 509,000 tons in 2005 to 1.5
million tons by 2009. TH plans to farm an additional 2100
hectares in Mafambisse, in Sofala province, increasing
production there by to over 82,000 tons by 2009.


8. TH expects to see its processed sugar production
increase from 115,000 tons in 2005 to 270,000 by the time EU
markets open up to Mozambican producers. The expansion is
expected to create 6,638 new job in Xinavane and 2,145 new
jobs in Mafambisse. There is talk that other sugar
producers plan to also increase sugar production in
Mozambique, a low cost region with large potential.


Old Metical No Longer Legal Currency, Still Circulating
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9. On Saturday, July 1, 2006, Mozambique began circulation
of its new currency, the New Family of Meticais (MTn). The
new bills include anti-counterfeit security features and
display the image of Mozambique's first post-independence
president, Samora Machel. New coins in varying denominations
were also released. From July 1 through December 31, 2006,
vendors were required to accept both old and new currencies.


10. Beginning January 1, 2007, vendors were no longer
allowed to accept or return old currency. Old currency must
now be exchanged at commercial banks, which will accept the
old currency for exchange until December 31, 2007.


11. The transition has generally been very smooth.
However, in spite of the fact that Bank of Mozambique's
declaration that continued use of old currency is a
violation of the law, taking old coins out of circulation is
proving to be a particular challenge. Vendors continue to
accept old coins, often returning change in old coins as
well. To address the old coin problem, the Bank of
Mozambique opened a special counter for the exchange of
coins in mid-December. Although initially available only to
businesses, the counter was opened to individuals by mid-
January. The Bank of Mozambique hopes that this action will
slow and eventually halt circulation of old coins. (See 06
Maputo 776.)


Customs Seized Record Amount of Counterfeit Goods in 2006
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12. On January 26, World Customs Day, the Mozambican
customs authorities held a seminar in Maputo to discuss the
fight against counterfeit goods. Harcio Simao, customs
director of policies and procedures, discussed the dangers

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of counterfeit goods to the national economy and public
safety. Customs also announced that authorities seized
counterfeit and pirated goods worth USD 4.7 million in 2006.


13. Over the last two years much progress has been made in
Mozambique regarding counterfeited goods and illegal
imports, as the result of a joint private sector/government
task force that investigates and responds to suspected IPR
violations.

Customs Service Exceeds Target Revenue for 2006
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14. The Mozambican Customs Service announced that in 2006
it collected USD 430 million (roughly 40 percent of total
government revenue for the year),a twenty percent increase
over 2005 and two percent higher that its target amount.
Danilo Nala, Deputy General Manager of Customs, attributed
the increase to growth of the Mozambican economy, greater
efficiency in collecting duties and the fight against tax
evasion.

Dudley