VZCZCXRO8913
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0198/01 0461357
ZNR UUUUU ZZH
R 151357Z FEB 07
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6865
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0156
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

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 
 
 
MAPUTO 00000198  001.2 OF 003 
 
 
¶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 
--------------------------------------------- - 
 
¶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. 
 
MAPUTO 00000198  002.2 OF 003 
 
 
 
¶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 
--------------------------------------------- ----------- 
 
¶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 
--------------------------------------------- ------------- 
 
¶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 
 
MAPUTO 00000198  003.2 OF 003 
 
 
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 
--------------------------------------------- --- 
 
¶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