VZCZCXRO1948
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1496/01 3210926
ZNR UUUUU ZZH
R 170926Z NOV 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6424
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0119
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 001496 
 
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: September/October Economic Digest: Mozambique 
 
MAPUTO 00001496  001.2 OF 003 
 
 
¶1. This is a brief summary of significant economic 
developments in Mozambique during September and October 
¶2006.  We provide it as a supplement to our other reporting. 
The items discussed are: 
 
-- USTDA Signs Grant with Aeroportos de Mocambique 
 
-- Labor Law Not Submitted to Parliament 
 
-- Inflation Less Than Four Percent Over First Three 
Quarters 
 
-- Tanzanians Purchase Defunct Textile Factory 
 
-- Hopes are High that South African Company will Revive 
Steel Industry 
 
-- Madgermanes Receive Shares of SOCREMO 
 
 
-- Illegal Trafficking of Precious Stones a Problem, 
Although Scope is Not Yet Known 
 
-- GRM Taking Action on Contraband 
 
 
USTDA Signs Grant with Aeroportos de Mocambique 
--------------------------------------------- -- 
 
¶2.  On October 20 USTDA Deputy Director Leocadia Zak signed 
a USD 445,000 grant agreement with Aeroportos de Mocambique 
that will provide for a feasibility study of the possible 
expansion of the Pemba, Nacala and Vilankulos airports. 
Signing the agreement with Ms. Zak were Charge d'affaires 
Elizabeth Raspolic and two members of the ADM board, Antonio 
Loureiro and Hermenegildo Mavale.  This feasibility study 
will further enhance the GRM's potential development of 
Mozambique's tourism industry, complementing USAID's current 
tourism project in the northern provinces of Nampula, Niassa 
and Cabo Delgado. (See Maputo 460.) 
 
 
Labor Law Not Submitted to Assembly 
------------------------------------- 
 
¶3.  As reported earlier, (see Maputo 1002 and 561), in 
September the Council of Ministers approved for submission 
to the National Assembly a controversial revision to the 
labor law.  Controversial because after two years of 
painstaking negotiation between unions, business groups, and 
the government, the Minister of Labor had unilaterally 
rolled back many of the changes that would have promoted job 
creation by making it less expensive to employ and dismiss 
people. 
 
¶4.  In the face of protests from the donors who had 
supported the process and the private sector (through the 
USAID-funding umbrella associatio of associations, CTA), 
the government has apparently decided to shelve the law 
until at least the next assembly (March, 2007). Although no 
reasos have been given, the law was not submitted to th 
parliament 30 days before the start of the sesson, and now 
could only be considered in the highy unusual event of a 
special presidential initiative.  It is not clear whether 
the delay will increase the chances of signiicant reform. 
 
Inflation Less Than Four Percent Over First Three Quarters 
--------------------------------------------- ------------ 
 
¶5.  The Centrl Bank of Mozambique announced in September 
thatinflation has been falling in Mozambique since Aprl, 
resulting in less than four percent inflation over the first 
three quarters of the year.  If this trend continues, the 
2006 rate will be below the GRM target of seven percent. 
Bank spokesman Valdemar de Sousa acknowledged that inflation 
also seemed to be well under control at the same time last 
year, but that seasonal price surges resulted in more than 
half of the 2005 inflation occurring in November and 
December.  As a result, the Bank is trying to prevent a 
similar spike this year - primarily through exchange rate 
stability. 
 
 
MAPUTO 00001496  002.2 OF 003 
 
 
 
Tanzanians Purchase Defunct Textile Factory 
------------------------------------------- 
 
¶6.  On October 9 the Tanzanian company METL (Mohammed 
Enterprises Tanzania Ltd) became the new 100 percent owner 
of Texmoque in the northern city of Nampula.  Texmoque 
closed its doors in 1994 while under state management.  In 
1996 the Portuguese MultiplierGroup purchased a 70 percent 
interest in the company (the GRM retained the remaining 30 
percent).  Multiplier was never able to successfully restart 
production.  METL currently runs textile plants in Tanzania 
and has promised to invest USD 20 million in new equipment 
and renovations.  METL plans to resume production in 2007, 
with approximately 400 workers. 
 
 
Hopes are High that South African Company will Revive Steel 
Industry 
--------------------------------------------- -------------- 
 
¶7.  On October 6 the South African steel company Mittal 
Steel signed an agreement to purchase the assets of two 
currently defunct companies - the steel rolling mill, CSM, 
and the wire-drawing company, Trefil.  A Portuguese investor 
purchased 60 percent of each company when they were 
privatized over 10 years ago, but never made the promised 
investmnt.  As a result, Trefil stopped production over a 
year ago, and CSM closed over five years ago.  Mittal is 
paying USD 11.4 million for the two companies' assets. 
Mittal states that this acquisition is part of its strategy 
to increase its sub-Saharan presence.  In an initial 
investment phase Mittal will invest over USD 10 million 
dollars to make the factories operational.  Current 
estimates are that this phase will create around 200 jobs 
and that the factories will be back in production in about 
six months, reaching an annual production of 72,000 tons 
(CSM) and 32,000 tons (Trefil) within two years.  As part of 
its concession agreement, Mittal committed to the 
development of the steel industry and mining sector and has 
identified several opportunities for steel industry growth 
in Mozambique, including fields of primary and downstream 
iron and steel manufacturing, development of coal and 
metallurgical coal mines and related processing plants and 
opportunities in the development of iron ore mine and 
related processing plants. 
 
 
Madgermanes Receive Shares of SOCREMO 
------------------------------------ 
 
¶8.  On September 28 the Forum of Mozambican Returnees (the 
Forum) from the former German Democratic Republic (also 
collectively known as the Madgermanes) received the GRM's 
shares in and profits from the micro-credit company SOCREMO. 
This transfer was part of a final settlement of the 
Madgermanes' claims announced by the Ministry of Labor in 
December 2005.  The Forum sold the shares back to SOCREMO, 
making the total netted from the shares plus profits 
approximately USD 846,000. The forum must now decide how to 
handle the money and will likely invest for future returns. 
Simply sharing the money would give each registered 
Madgermane only slightly more than USD 50 each.  There are 
nearly 22,000 Madgermane, all of whom were workers under a 
migrant labor agreement with the GDR. 
 
 
Illegal Trafficking of Precious Stones a Problem, Although 
Scope Not Yet Known 
--------------------------------------------- -------------- 
 
¶9.  On September 27 the GRM seized over 350 tons of precious 
stones, worth around USD 700,000, which were illegally 
extracted from the western province of Tete.  This is 
Mozambique's first sizeable seizure of precious stones, and 
the Ministry of Mineral Resources has admitted that 
trafficking is a problem, but the scale is not yet known. 
According to the Ministry, turmalines and aquamarines are of 
particular interest to smugglers, but other stones and 
minerals (including gold) are seeing an increase in illegal 
trafficking.  In an attempt to address the problem, the 
Ministry has increased inspections and placed technical 
 
MAPUTO 00001496  003.2 OF 003 
 
 
staff in all districts with mining interests. 
 
 
GRM Taking Action on Contraband 
------------------------------- 
 
¶20.  In both September and October the GRM took action 
against contraband and IPR violations, seizing counterfeit 
cigarettes and illegally imported electronic goods. 
According to the head of Customs public relations, there 
were at least three seizures of counterfeit cigarettes 
during the month of September, reflecting the GRM's 
awareness of not only health concerns, but that piracy 
damages the interests of legitimate companies.  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. 
 
 
Dudley