VZCZCXRO9176
RR RUEHDU RUEHJO RUEHMR
DE RUEHTO #0460/01 1101415
ZNR UUUUU ZZH
R 201415Z APR 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 5291
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0032
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 000460 
 
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: March Economic Digest: Mozambique 
 
 
MAPUTO 00000460  001.2 OF 003 
 
 
¶1. This is a brief summary of significant economic 
developments in Mozambique during March 2006.  We provide it 
as a supplement to our other reporting.  The items discussed 
are: 
 
-- Moma Titanium Reserves 40% Higher Than Expected 
 
-- IFC Purchases 5 Percent of Gas Project 
 
-- IMF Gives Positive Review of GRM's Tax Policy 
 
-- GRM Narrowly Missed 2005 Revenue Collection Target 
 
-- USAID/GRM Announce Tourism Development Project - 
"Development of Tourism in the Northern Arch" 
 
-- Port Concessionaire and Railway Parastatal in Dispute 
 
-- Debtor Companies Given Additional Time to Pay 
Overdue Social Security Contributions 
 
-- Fifty Percent of Exports go to South Africa 
 
Moma Titanium Reserves 40% Higher Than Expected 
--------------------------------------------- --- 
 
¶2.  Kenmare Resources, owner of the Moma Titanium Minerals 
Mine in the northern province of Nampula, announced that 
exploratory drilling has found much more titanium ore than 
expected.  Kenmare now expects to recover 101 million tons 
of ilmenite, a significant increase over the earlier 
estimate of 72 million tons.  Construction on the mine is 
also ahead of schedule, now 81% complete, and should be 
finished before the end of this year.  Kenmare expects to 
produce at least 700,000 tons of ilmenite, 60,000 tons of 
zircon and 17,000 tons of rutile each year for at least 20 
years.  The mine is expected to employ over 400 employees 
and create around 1500 indirect jobs.  Once operational, the 
mine is projected to contribute up to 2.4 percent per year 
to Mozambique's GDP. 
 
IFC Purchases 5 Percent of Gas Project 
-------------------------------------- 
 
¶3.  IFC, the private sector financing arm of the World Bank, 
signed a purchase agreement with the Mozambican Hydrocarbon 
Company (CMH) on March 27.  Under the terms of this 
agreement, IFC will now own five per cent of CMH's shares in 
the Pande/Temane Natural Gas Project in the southern 
province of Inhambane.  The South African petrochemical 
company Sasol will still own 70% percent of the Pande/Temane 
project, with the remaining 30% owned by CMH (25%) and the 
IFC (5%).  The agreement took effect as of April 1, 2006. 
Current gas production from the project is approximately 91 
mega joules and Sasol representatives state they look 
forward to a rapid increase in gas production over the next 
few years.  If increased production is realized, Sasol has 
expansion plans that will result in a significant increase 
in the amount of natural gas available to the Mozambican 
market. 
 
IMF Reviews Tax Policy at GRM's Request 
----------------------------------------- 
 
¶4.  The IMF conducted a review of Mozambique's tax policy, 
at the request of the Government of Mozambique.  The IMF 
examined the structure and design of the tax system, with 
administration issues only of peripheral consideration. 
After completing its review, the IMF concluded that the 
GRM's tax policy is overall sound, with only small 
deficiencies.  The review highlighted some problem areas: a) 
absolute tax revenues are going up, but are declining as a 
percentage of GDP; b) there are overly generous terms to 
mega projects that are essentially unrestricted by time and 
c) administration of the system.  Based on what IMF 
officials called "precarious" data, the GRM has the 
potential to collect 22 percent of GDP.  However, currently 
it collects 11 percent of GDP in taxes, with royalties and 
fees boosting total revenue to 14 percent.  Looking forward, 
there are two significant tax collection gaps that will need 
to be filled - the missing portion of potential collections 
and the projected fall in customs revenue that will result 
 
MAPUTO 00000460  002.2 OF 003 
 
 
from the SADC free trade agreement's required reduction in 
tariffs. 
 
GRM Narrowly Missed 2005 Revenue Collection Target 
--------------------------------------------- ----- 
 
¶5.  The GRM declared in March that it missed its 2005 
revenue collection target, falling short by 0.4 percent of 
GDP.  Collected revenue was equivalent to 14.1 percent of 
estimated GDP, short of the 14.5 percent goal.  Mozambican 
officials plan to focus on improving the links between the 
tax administration and taxpayers, increasing the number of 
tax collection offices and fighting corruption and fraud. 
Not all observers found the shortfall upsetting, some 
believing the original goal of 14.5 percent unrealistically 
ambitious. 
 
USAID/GRM Announce Tourism Development Project - 
"Development of Tourism in the Northern Arch" 
--------------------------------------------- --------------- 
----------------------------- 
 
¶6.  On March 3, USAID officials and Tourism Minister 
Fernando Sumbana announced the USAID sponsored tourism 
project - "Development of Tourism in the Northern Arch". 
The project focuses on promotion of tourism in the northern 
region, specifically the provinces of Nampula, Niassa and 
Cable Delgado and will be implemented over the next three 
years.  USAID is contributing USD 5.5 million to the 
project, which will consist of three prongs.  The first 
prong focuses on attracting tourists through rehabilitation 
of Ibo Island and other endeavors, while the second prong 
focuses on attracting investors.  The third prong is 
dedicated to preserving the environment through creation and 
support of a Pemba Bay Conservancy and a National Park on 
Lake Niassa.  USAID will have a lead role in project 
implementation. 
 
Port Concessionaire and Railway Parastatal in Dispute 
--------------------------------------------- ------------ 
 
¶7.  Rui Fonseca, Chairman of the parastatal Mozambican Ports 
and Railway Company (CFM), made several public statements in 
March accusing the Maputo Port Development Company (MPDC) of 
failing to honor its contracts and causing huge losses to 
CFM.  Under the concession agreement, MPDC is supposed to 
pay an annual amount fixed to the US Consumer Price Index, 
plus a percentage of pre-tax gross income.  MPDC officials 
say that they have not paid the fixed amount to CFM for the 
last two years because CFM is also in violation of the 
concession agreement.  (Note: This amount is USD 10 million. 
End note.)  According to MPDC, the concession agreement 
required CFM to rehabilitate the railway line connecting the 
Port of Maputo with Ressano Garcia, the closest border 
crossing to South Africa.  CFM has not yet been able to 
rehabilitate this line, recently canceling a concession with 
the South African firm SpoorNet after years of inactivity. 
Prior to independence, the Port of Maputo handled over 15 
million tons of product per year.  The Port currently 
handles approximately 6 million tons per year, and MPDC 
officials state that rehabilitation of the rail line is 
critical to reaching pre-independence levels. 
 
Debtor Companies Given Additional Time to Pay Overdue Social 
Security Contributions 
--------------------------------------------- --------- 
 
¶8.  The GRM announced on March 20 that companies would be 
given an additional three months to pay overdue social 
security contributions.  The current amount outstanding is 
estimated to be over USD 4.8 million.  Collection of 
contributions owed to the National Social Security Institute 
(INSS) has been an ongoing struggle, with many companies 
deducting the amounts for worker paychecks but failing to 
transmit the money to the INSS.  In August of 2005, Minister 
of Labor Helena Taipo fired the INSS General Director and 
many INSS employees in an effort to refocus the entity and 
fight corruption. 
 
Fifty Percent of Exports go to South Africa 
------------------------------------------- 
 
 
MAPUTO 00000460  003.2 OF 003 
 
 
¶9.  Sergio Macamo, economic advisor to Mozambique's Ministry 
of Industry and Commerce, speaking at an investment seminar 
in neighboring Nelspruit, South Africa, on March 14, 
emphasized South Africa's role as a major economic partner 
with Mozambique.  According to Macamo, not only do fifty 
percent of Mozambique's exports go to South Africa, but 
fifty percent of its imports are South African as well. 
Macamo stated that Mozambican companies were looking for 
partners in glass, textile and rubber ventures, and that 
Mozambique offered vast opportunities for investors in mega- 
projects such as coal mining, bio-diesel manufacturing, 
aluminum and refurbishment of railway lines. 
 
La Lime