VZCZCXRO7790
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0983/01 2461146
ZNR UUUUU ZZH
R 031146Z SEP 09
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 0671
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0480
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 04 MAPUTO 000983 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD KCOR EINV EWWT PGOV MZ SF
SUBJECT: MAPUTO PORT BRINGS COMPETITION...AND CORRUPTION 
 
REF: A. MAPUTO 980 
     ¶B. MAPUTO 896 
 
This cable is a collaboration between Embassy Maputo and 
Embassy Pretoria and is part of a series of reporting on 
regional transport infrastructure developments. 
 
¶1.  (SBU) Summary: The Government of Mozambique (GRM) entered 
into partnership with private investors to revitalize and 
increase port and rail infrastructure capacity, which was 
long-neglected during the civil war.  Econoffs met with GRM 
and private sector representatives to discuss progress with 
port and rail rehabilitation and challenges with further 
capacity expansions.  Cargo volumes at the Port of Maputo are 
slowly rising and some auto manufacturers in the region are 
beginning to shift traffic from the Port of Durban to the 
Port of Maputo.  Unfortunately, despite high technology 
scanning equipment (ref A), the Port of Maputo is hampered by 
corruption.  According to a joint Harvard University-IFC 
study comparing Durban and Maputo, the probability of paying 
a bribe at the Port of Maputo is 53 percent compared to 35 
percent in Durban, and the amount of bribes paid in Maputo 
are four times higher than in Durban.  Bribe payments in 
Maputo represent a 130 percent increase in total port costs 
per 20 foot container and are equivalent to 14 percent of 
total shipping costs.  Besides this increased economic cost 
to shippers, the Port of Maputo is also hindered by a limited 
supply of rail capacity and a dependence on South African 
rail capacity.  Private investors are considering partnering 
with the GRM to revitalize additional rail rolling stock, but 
will need incentives to do so.  The Port of Maputo cannot 
meet its ambitious expansion plans without an ability to 
guarantee independent rail service within the region.  End 
Summary. 
 
¶2. (SBU) Econoffs met with representatives of Mozambique 
National Railways and Ports Authority (CFM), South African 
state-controlled Transnet Freight Rail, South African-based 
private shipping and logistics company Grindrod, and Maputo 
Port Development Company (MPDC) recently to discuss progress 
with rehabilitation of Mozambique's port and rail 
infrastructure capacity. 
 
------------------------------------------ 
Privatization Leads to Port Rehabilitation 
------------------------------------------ 
 
¶3. (SBU) The Port of Maputo handled about 15 million tons of 
cargo per year before independence and the outbreak of the 
civil war in 1977, when the port fell into disrepair.  The 
GRM signed a 15-year concession deal with a group of private 
European investors in 2003 to create the MPDC to rehabilitate 
the port.  The MPDC manages the port and its rehabilitation, 
but the physical assets remain the property of the state. 
The private consortium controls 51 percent of the MPDC and 
the Government of Mozambique (GRM) and CFM hold the remaining 
49 percent. 
 
¶4. (SBU) CFM had a falling-out with the European investors 
due to poor management and Grindrod bought their shares in 
late 2007.  Grindrod then sold half of its shares to Dubai 
Ports World (now DP World), which has extensive international 
experience with operating container terminals (Note: In the 
first half of 2009, DP World began restructuring MPDC, firing 
a significant number of the executive staff to include the 
CEO, and MPDC sources suggest that the current financial 
situation of the port is poor.  End Note).  Grindrod's 
expertise lies in operating bulk cargo facilities.  The MPDC 
is currently expanding the port to accommodate greater demand 
and new-generation, extended-range vessels.  The port handled 
7.8 million tons of cargo in 2007, its best performance in 25 
years.  Projects launched by the public-private Maputo 
Corridor Logistics Initiative (with stakeholders from 
Mozambique, South Africa, and Swaziland) to support trade 
facilitation are also credited with the ports recent success. 
 
 
¶5. (SBU) Grindrod representatives believe the port will have 
the capacity to handle 30 million tons of cargo per year once 
the expansions are completed.  Major commodities exported via 
Maputo include refined sugar, ferrous metals, and stainless 
steel products.  A special type of coal preferred in the 
Turkish market for indoor heating purposes is exported in 
large quantities (approximately 200-250 thousand tons per 
month).  Ports in Southern Africa have also received a boost 
in demand due to the rise of piracy in the Gulf of Aden. 
 
MAPUTO 00000983  002 OF 004 
 
 
Container and bulk cargo are the biggest target for pirates 
and major shipping lines have diverted traffic to Southern 
African ports as a result. 
 
-------------------------------- 
Corruption at the Port of Maputo 
-------------------------------- 
 
¶6.  (SBU) The Port of Maputo is hampered by corruption 
according to a joint Harvard University-IFC study comparing 
Durban and Maputo.  The study finds that the probability of 
paying a bribe at the Port of Maputo is 53 percent compared 
to 35 percent in Durban, and the amount of bribes paid in 
Maputo are four times higher than in Durban.  Bribe payments 
in Maputo represent a 130 percent increase in total port 
costs per 20 foot container and are equivalent to 14 percent 
of total shipping costs. 
 
¶7.  (SBU) The study indicates that port operators in Maputo 
have greater discretion to extract bribes due to close 
interactions between clearing agents and customs officials, 
which represent a 600 percent increase in the average salary 
of a Customs official who is the bribe recipient 80 percent 
of the time in Maputo.  The median bribe in Maputo is 
equivalent to 24 percent of the monthly salary of a customs 
official, according to Sequeira and Djankov, who note that 
despite having one of the highest salaries in Mozambican 
public administration, it appears that Customs officials are 
motivated to extract bribes because they work, with high 
extractive powers in an environment of virtual impunity.  The 
report also notes that due to the access to information 
through the port's scanning initiative (septel), customs 
officials wield a &broader toolkit8 of authority to extract 
bribes.  As a result, shippers in the region have negative 
incentives to use the Port of Maputo. 
 
-------------------------------------------- 
Maputo an Alternative to South African Ports 
-------------------------------------------- 
 
¶8. (SBU) Despite higher levels of corruption, industry 
analysts believe the partial privatization of the Port of 
Maputo has delivered significant efficiencies that allow it 
to compete with South African ports operated by Transnet. 
Grindrod officials do not describe it as a direct competitor 
to Transnet-operated ports, but note that it can serve 
instead as a complementary port within a larger network that 
serves Sub-Saharan Africa.  Transport logistics costs in 
Southern Africa can be up to 60 percent of a product's final 
cost and Maputo is well-positioned to service Mozambique, 
Zimbabwe, and Swaziland more efficiently than South African 
ports.  Maputo is Southern Africa's closest port to the 
rapidly developing mega-markets of Asia and is also the 
closest deep-water port to the main South African 
manufacturing and agricultural exporting provinces: Gauteng, 
Mpumalanga and Limpopo.  Maputo provides an additional 
gateway for cargo movements and relieves congestion pressure 
at Transnet-operated ports. 
 
-------------------------------------------- 
Car Terminal Attracting Business from Durban 
-------------------------------------------- 
 
¶9. (SBU) Grindrod is developing a car terminal in Maputo that 
will have the same capacity as the Port of Durban car 
terminal once it is completed.  The Maputo car terminal can 
currently handle about 100-150 new vehicles per hour.  Nissan 
South Africa has already agreed to utilize the Maputo car 
terminal as an alternative to Durban.  After global economic 
conditions improve, Nissan would also like to export its auto 
components from Maputo.  Talks have advanced with Ford South 
Africa and BMW to export some of their volumes through 
Maputo.  It is cost-efficient for manufacturers such as 
Nissan, who do not have preferential access to the South 
African car terminals, to utilize Maputo instead.  Nissan 
currently exports vehicles to East and West Coasts of Africa 
and hopes to export to Europe and North American markets once 
the economy improves. 
 
¶10. (SBU) The new and used vehicle import market in 
Mozambique is strong.  Ford is importing vehicles from Taiwan 
and East Asia for the local market.  Heavy-vehicles (trucks 
and tractors) are imported from the U.S. for the markets in 
Mozambique, Zimbabwe, and Malawi.  Zimbabwe used to have a 
strong market for vehicle imports before the political 
turmoil began.  The market for construction equipment imports 
 
MAPUTO 00000983  003 OF 004 
 
 
in the region is also likely to grow with large-scale coal 
mining expected to start in 2010 in Tete province, as well as 
a variety of MCC-funded public works programs over the next 
five years.  Manufacturers such as Caterpillar currently ship 
their construction equipment to Durban and it is then 
transshipped to Maputo for distribution to the rest of the 
region.  Caterpillar recently conducted a successful trial to 
test direct shipments to Maputo. 
 
---------------------------------------- 
Rail Capacity Major Impediment to Growth 
---------------------------------------- 
 
¶11. (SBU) CFM is 30 years behind contemporary organizations 
such as Transnet due to a lack of infrastructure investments 
and the destruction caused by the 16-year long civil war. 
Existing rail lines have been rehabilitated since the end of 
the war, but they are insufficient to handle demand growth. 
The system is composed of 2,983 kilometers of rail and runs 
only east-to-west connecting Mozambique to its land-locked 
neighbors.  Rail connections to facilitate trade within the 
country (i.e., north-south links) are still non-existent. 
Analysts emphasize that CFM must focus on improving 
interconnections between the existing lines to facilitate 
port expansions and economic growth throughout the country. 
The GRM is also looking at reviving international passenger 
rail service between South Africa and Mozambique.  There is 
market demand for this service and there is an agreement with 
Transnet to use Transnet's rolling stock.  A trial service 
was launched in June. 
 
¶12. (SBU) The coal terminal at the Port of Maputo is 100 
percent reliant on rail, but CFM does not have adequate 
rolling stock to handle coal cargo volumes and has to depend 
on Transnet's rolling stock.  Export of commodities such as 
Benzonite from Mozambique to South Africa also depends on 
Transnet's rolling stock.  (Note: Transnet does not have a 
lot of spare capacity due to underinvestment in South African 
rolling stock and it would not be in its commercial interest 
to provide too much of its limited supply to support CFM 
since it does not want the Port of Durban to lose business to 
the Port of Maputo during the economic downturn.  End Note). 
Ferrochrome and other minerals from South Africa are 
currently transported by road to Maputo for export to Asia 
due to a lack of rail capacity.  This increases transport 
costs and leads to the degradation of roads and local 
environment. 
 
--------------------------------------------- ---- 
Continued Private Investment Key to Future Growth 
--------------------------------------------- ---- 
 
¶13. (SBU) Grindrod and DP World have submitted a new Master 
Port Development Plan for GRM approval.  The plan calls for 
increasing capacity to accommodate 12-15 percent growth per 
year to eventually reach a capacity of 90 million TEUs per 
year by 2017.  (Note: A TEU or twenty-foot equivalent unit is 
an inexact unit of cargo capacity often used to describe the 
capacity of container ships and container terminals.  It is 
based on the volume of a 20-foot long intermodal container. 
End Note.)  MPDC is also focusing on improving skills 
development among the local staff.  Dubai Port World is 
planning on additional infrastructure investments including 
new mobile cranes.  Support for the development of the 
24-hour, one-stop border project with South Africa should 
also facilitate cargo movements required for continued 
expansions at the Port of Maputo (ref B). 
 
¶14. (SBU) Grindrod told post that it was willing to partner 
with CFM on developing additional rolling stock capacity in 
Mozambique.  There is out-of-service rolling stock in 
Mozambique that could be rehabilitated with private 
investments.  Grindrod is waiting to see how the GRM reacts 
to the new Master Port Development Plan, with any new 
investment in rolling stock dependant on whether Grindrod is 
able to successfully extend its current concession by 10 
years.  Finally, Grindrod is cautious about alienating its 
relationship with Transnet, which is the biggest transport 
logistics player in the Southern African market, and views 
the Port of Maputo as both a complementary and competitor 
port.  Unfortunately, Transnet has little incentive to 
partner with GRM to provide additional rail rolling stock 
when it is not in Transnet's commercial interest. 
 
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COMMENT 
 
MAPUTO 00000983  004 OF 004 
 
 
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¶15. (SBU) The GRM cannot attract additional international 
exporters or importers to meet its ambitious expansion plans 
without guarantees of greater transparency at the Port of 
Maputo as well as independent rail service within the region. 
 Further improvements in the Port of Maputo and its 
associated rail infrastructure will inevitably reduce overall 
transport logistics costs and facilitate regional trade 
growth; however, the port's growth will continue to be 
hindered until the GRM finds the political will to prosecute 
corrupt Customs officials and limit opportunities for 
bribery.  The GRM should first deal with corruption in 
Customs and then consider building on their partnerships with 
Grindrod and other private international investors to 
rehabilitate and develop additional rail infrastructure to 
reduce dependence on South African rail capacity. 
CHAPMAN