VZCZCXRO9140
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0801/01 1921104
ZNR UUUUU ZZH
R 111104Z JUL 07
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 7614
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0218
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 MAPUTO 000801 
 
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: May/June Economic Digest: Mozambique 
 
 
MAPUTO 00000801  001.2 OF 004 
 
 
¶1. This is a brief summary of significant economic 
developments in Mozambique during May and June 2007. 
We provide it as a supplement to our other reporting. 
The items discussed are: 
 
-- Investment in Tourism Increases Significantly 
 
-- M-Cel Now in the Black 
 
-- Theft Plagues MozambiqueQs Power Utility 
 
-- EDM Plans Major Grid Investments 
 
-- New Tender for Oil Exploration on the Horizon 
 
-- Mining Investment in Mozambique Increased by 56% 
 
-- Port of Nacala to Link Zambia with Indian Ocean 
 
-- CVRD Signs Contract with GRM; Moatize Mining Begins 
   By 2010 
 
-- Mozambique Buys Back Commercial Debt 
 
-- Minimum Wage Increased 14% 
 
-- IMF Concludes Final PRGF Review 
 
-- Sweden to Help Bring Electricity to Niassa 
 
-- Inflation Low, Central Bank Reduces Key Interest 
   Rate, Private Sector Wants More 
 
 
Investment in Tourism Increases Significantly 
--------------------------------------------- - 
 
¶2.  A government report noted that MozambiqueQs 
tourism sector saw an increase of USD 83 million in 
investment between 2005 and 2006, reaching a total of 
USD 604 million.  According to Deputy Tourism Minister 
Rosario Mualeia, the majority of the investment was in 
hotels, roads and new tourist resorts.  Deputy 
Minister Mualeia also predicted that 2007 will be one 
of the best years in decades for the tourism sector, 
estimating that Mozambique would receive over one 
million international tourists and revenues of over 
USD 150 million.  Tourism revenues for 2006 totaled 
USD 144 million. 
 
M-Cel Now In the Black 
----------------------- 
 
¶3.  M-Cel, MozambiqueQs mostly publicly owned cell 
phone company, is now running a profit, according to 
its latest press release.  M-Cel states that it made a 
profit of approximately USD 19.6 million in 2006, with 
total revenue of approximately USD 170 million, an 
increase of 29 percent compared with 2005.  M-Cel 
claims that it holds 70 percent of the Mozambican cell 
phone market.  Competitor and private company Vodacom 
claims 35 percent and continues to post losses. 
 
 
 
 
Theft Plagues MozambiqueQ Power Utility 
---------------------------------------- 
 
¶4.  MozambiqueQs state power utility Electricidade de 
Mozambique (EDM) has lost more than USD 6.5 million to 
theft since 2001.  In the first half of 2007 EDM 
suffered losses of more than USD 650,000.  Oil from 
power transformers and items made of copper or 
aluminum are favorite targets.  According to EDM, the 
theft results in often long power cuts to areas as the 
company waits for replacement transformers and other 
equipment. 
 
EDM Plans Major Grid Investments 
--------------------------------- 
 
 
MAPUTO 00000801  002.2 OF 004 
 
 
¶5.  On June 22, Finance Minister Manuel Chang signed 
EDM's new program contract.  Under the terms of the 
new program contract, EDM plans to set up 210,000 new 
links to the grid by 2009.  These upgrades will cost 
an estimated USD 382 million and will bring 
electricity to nearly one million people, largely in 
rural areas.  Nearly 70 percent of the funding will 
come from unspecified overseas sources; EDM will raise 
the remaining 30 percent.  According to Chang, the GRM 
plans to provide grants and credits to EDM and assist 
the company in accessing overseas capital markets; the 
government is also considering canceling part of EDMQs 
outstanding debts. 
 
New Tender for Oil Exploration on the Horizon 
--------------------------------------------- - 
 
¶6.  Mineral Resources Minister Esperanca Bias 
announced in June that Mozambique intends to launch a 
new oil exploration tender by the end of the year. 
The new tender will focus on the southern province of 
Inhambane.  South of Inhambane, the Pande and Temane 
gas field are proven, with Pande alone holding 
reserves of over 3.5 million cubic feet.  Minister 
Bias stated that considerable oil and gas exploration 
possibilities existed in the provinces of Gaza, 
Inhambane, Sofala, Zambezi, Nampula, Cabo Delgado and 
related offshore areas. 
 
Mining Investment in Mozambique Increased by 56% 
--------------------------------------------- ---- 
 
¶7.  Suggesting that investors and explorers see real 
potential in MozambiqueQs mineral rich, but largely 
unexplored, provinces, mining investment in Mozambique 
between 2005 and 2006 increased by 56%.  The increase 
in investment in the mining sector has been rapid; 
investment in 2004 reached USD 40 million, climbed to 
USD 160 million in 2005 and reached a staggering USD 
250 million in 2006.  The GRM issued over 900 mining 
licenses last year, the majority for 
exploration/mining in base metals, tantalite, coal and 
gold, however significant exploration for uranium and 
other elements continues. 
 
Port of Nacala to Link Zambia with Indian Ocean 
--------------------------------------------- --- 
 
¶8.  According to Zambian Ambassador to Mozambique, 
Edwin H. Hatembo, by September 2007, Zambia will be 
linked by rail to the Port of Nacala.  Hatembo, who 
was visiting Nampula as part of a group of African 
ambassadors studying the feasibility of using the 
Nacala corridor, stated that come September the Nacala 
corridor will be one of ZambiaQs doorways for foreign 
trade.  Reconstruction work is currently underway on 
the railway line between Nchingi and Chipaka, in 
Malawi; completion of this line is necessary to link 
Zambia to the Nacala corridor.  (Note:  The Nacala 
Corridor railway and port is run by CDN, an OPIC- 
backed investment 51% owned by a consortium of two 
American companies and one Mozambican investor. End 
Note.) 
 
CVRD Signs Contract with GRM; Moatize Mining Begins by 
2010 
--------------------------------------------- --------- 
 
¶9.  Companhia Vale do Rio Doce (CVRD) announced that 
the GRM formally approved the mining contract for the 
development of the multi-billion-dollar Moatize coal 
project, located in the northwestern province of Tete. 
Signing of the Moatize contract followed approval of 
the project development plan by the GRM in early June. 
The contract grant is for 25 years, extendable by 
CVRD, and clarifies the tax, international trade, 
labor and foreign exchange rules that will govern CVRD 
investment in Moatize.  Training of technical staff, 
installation of equipment and construction of 
infrastructure should be completed within 36 months, 
with mining of coal beginning in 2010.  Moatize basin 
holds reserves of at least 2.4 billion tons of coal. 
 
MAPUTO 00000801  003.2 OF 004 
 
 
CVRD expects an annual production of approximately 11 
million metric tons of coal products, with open pit 
mining continuing for 35 years. 
 
Mozambique Buys Back Commercial Debt 
------------------------------------- 
 
¶10.  Mozambique and the World Bank signed an agreement 
on May 10 under which Mozambique bought back its 
commercial debt for nine percent of its nominal value. 
The agreement grants Mozambique USD 16.1 million to 
buy back commercial debt with a nominal value of USD 
176 million.  The 176 million includes USD 119.8 
million in capital and USD 56.2 million in interest. 
Norway granted USD 14.7 million dollars, with the 
World Bank contributing USD 1.4 million.  This 
agreement is the second buy back agreement for 
Mozambique and makes the Mozambican government 
completely free of commercial debt.  (Note. The first 
buy back agreement was in 1991 for USD 123.8 million 
dollars (nominal value). End Note.) 
 
Minimum Wage Increased 14% 
-------------------------- 
 
¶11.  In May the GRM raised by 14 percent the statutory 
minimum wage for industry and services.  The increase 
followed an extended deadlock in negotiations at the 
Consultative Labor Commission (CCT), the tripartite 
negotiating body which includes government, union and 
Mozambican Confederation of Business Associations 
(CTA) (the umbrella organization representing the 
private sector) representatives.  Agricultural workers 
received a lower increase of 10 percent.  The current 
increases will be backdated to April 1st. The 14 
percent increase is above the 2006 consumer price 
inflation rate of approximately 9 percent. 
 
IMF Concludes Final PRGF Review 
-------------------------------- 
 
¶12.  On June 18, the Executive Board of the 
International Monetary Fund (IMF) completed its final 
review of MozambiqueQs economic performance under the 
IMFQs Poverty Reduction and Growth Facility (PGRF). 
The PGRF Loan agreement, for approximately USD 17.1 
million, allowed for disbursements in six 
installments, conditional on positive reviews.  The 
latest and final review allows for a final 
disbursement of the remaining USD 2.4 million still 
outstanding.  The IMF is not offering any additional 
loans to Mozambique, instead offering to assist 
through a three-year Policy Support Instrument (PSI). 
PSIs are endorsements by the IMF of a countryQs 
economic policies; according to the IMF, MozambiqueQs 
PSI will support economic reform by helping to 
maintain macroeconomic stability. 
 
Sweden to Help Bring Electricity to Niassa 
-------------------------------------------- 
 
¶13.  Sweden will contribute approximately USD 11.3 
million to construct a new electricity transmission 
line in the northernmost province of Niassa.  The new 
line will link the city of Cuamba to Mecanhelas and 
Marrupa district capitals in the eastern region of the 
province.  This addition is part of the governmentQs 
goal to link over 100 of the 128 district capitals 
with the national power grid by 2010.  This grant is 
in addition to SwedenQs commitment, worth 
approximately USD 100 million, to expand the Cahora 
Bassa power lines from Zambezia province up to Cuamba 
and on to Lichinga, provincial capital of Niassa. 
 
Inflation Low, Central Bank Reduces Key Interest Rate, 
Private Sector Wants More 
--------------------------------------------- --------- 
 
 
¶14.  According to the Bank of Mozambique, the rate of 
inflation (based on the Maputo Consumer Price Index) 
was 1.55 percent during the first quarter of the year. 
 
MAPUTO 00000801  004.2 OF 004 
 
 
The GRMQs stated goal is to keep inflation at or below 
six percent in 2007, compared with over 9 percent in 
¶2006.  Despite low inflation, commercial banks 
continue to charge elevated rates of interest.  The 
average interest on a 365 day bank loan in April 2007 
was 23.84 percent, higher than the same time in 2006. 
In an attempt to get commercial banks to lower their 
interest rates, the Bank of Mozambique announced on 
June 11 that it would cut its own key interest rate 
from 17.5 to 15.5 percent.  The chairperson of the 
CTA, Salimo Abdula, characterized the action as 
positive, but CTA wants additional moves to make 
credit cheaper and business more competitive.  Lack of 
access to capital is an oft-cited complaint amongst 
businesspeople as limiting ability to invest and be 
competitive. 
 
Dudley