VZCZCXRO6982
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0638/01 0880745
ZNR UUUUU ZZH
R 280745Z MAR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3954
RUEHTO/AMEMBASSY MAPUTO 5813
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 PRETORIA 000638 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EPET ENRG PREL MZ SA
SUBJECT: SOUTH AFRICA/MOZAMBIQUE TRADE ON THE RISE 
 
 
¶1. (U) Summary: Economic ties between South Africa and Mozambique 
continue to strengthen.  Trade between the countries has grown 65 
percent since 2004 and the trade relationship is heavily in South 
Africa's favor.  South Africa has been the largest foreign investor 
in Mozambique for more than a decade, and its investments in 
infrastructure and energy mega projects have greatly contributed to 
increased trade between the two countries.  End Summary. 
 
--------------------------------------- 
Booming But Lopsided Trade Relationship 
--------------------------------------- 
 
 
¶2. (SBU) As of 2007, Mozambique is South Africa's 24th largest 
trading partner, representing 1.1 percent of all South African trade 
and its fifth largest trading partner in Africa, behind Nigeria, 
Angola, Zimbabwe, and Zambia.  Mozambique is South Africa's 31st 
largest source of imports (4th in Africa) and the 15th largest 
destination for its exports (2nd in Africa).  According to the SAG's 
Department of Trade and Industry (DTI), trade with Mozambique has 
grown 65 percent since 2004, with total trade in 2007 reaching 11.2 
billion rand (USD 1.5 billion).  DTI's Africa Desk Officer Deenan 
Prouty attributed the close and growing trade relationship to 
several factors, chief of which is "high-level political 
engagement," including heads of state and ministers, focused on 
economic development.  SA Institute of Foreign Affairs official 
Neuma Grobbelaar told econoff that Mozambique is South Africa's 
strongest political ally and therefore the close and growing trade 
relationship is only natural. 
 
 
¶3. (U) The consistent growth in trade between the neighboring 
countries is demonstrated in the table below (figures in million 
Rand): 
 
SA/Mozambique Trade 
   2004  2005  2006  2007 
SA Exports 5,077 6,402 6,204 8,905 
SA Imports 280  199  318  2,351 
Trade Balance 4,797 6,203 5,992 6,554 
 
The nearly 90 percent growth in imports between 2006 and 2007 is 
skewed by the inclusion, for the first time in 2007, of electricity 
and natural gas imports in the SAG's trade statistics.  Although 
South Africa has been importing electricity from Mozambique since 
1988 and natural gas since 2004, these imports were not recorded 
until 2007 and now represent nearly 70 percent of all South African 
imports from Mozambique.  Excluding electricity and gas, South 
Africa mostly imported textiles, animal products, and vegetable 
products.  Excluding electricity and gas, South African imports from 
Mozambique have still increased by 25 percent, signaling continued 
strong growth in trade well exceeding Mozambique and South Africa's 
individual GDP growth of 7 percent and 5 percent, respectively. 
 
¶4. (U) South Africa has consistently been Mozambique's largest 
trading partner: some 40 percent of Mozambique's imports come from 
South Africa and approximately 26 percent of Mozambique's exports 
are destined for South Africa.  Like many lesser developed countries 
seeking to industrialize, Mozambique mostly imports mineral 
products, machinery, electrical equipment, and base metals. 
 
-------------------------------------------- 
Robust But One-Sided Investment Relationship 
-------------------------------------------- 
 
¶5. (SBU) Mozambique's stable political environment, sustained high 
rates of economic growth and significant returns on the first of its 
infrastructure and energy mega projects have spurred investor 
confidence in recent years, and South African companies have led the 
Qconfidence in recent years, and South African companies have led the 
charge.  According to Grobbelaar, Mozambique was the second largest 
recipient of South African investment in Africa by 2004.  SAG 
estimates show that South Africa has invested approximately USD 4 
billion in Mozambique, accounting for nearly 50 percent of all 
foreign direct investment in the country through 2006, confirming 
its position as the single largest foreign investor in the country. 
According to Prouty, more than 400 South African companies have 
invested in Mozambique, in a diverse basket of industries, including 
infrastructure, construction, tourism, and retail.  Examples of 
significant South African investment in mega projects in Mozambique 
include: 
 
- BHP Billiton invested USD 2.1 billion in the Mozal aluminum 
smelter in Maputo Province. The smelter has made Mozambique one of 
the world's leading exporters of aluminum and is considered the 
primary catalyst for foreign direct investment in Mozambique. 
Mozambique uses the South African power transmission system to feed 
power to the smelter. 
 
 
PRETORIA 00000638  002 OF 003 
 
 
 
- South African state-owned SASOL Petrochemicals Group invested USD 
1.2 billion to develop the Pende and Temane gas fields in Inhambane 
Province.  SASOL pipes some 120-million gigajoules of natural gas 
per year (524 million cubic feet per day) to South Africa. 
 
- South Africa's privately owned Tongaat-Hulett Group is investing 
USD 177 million to expand production of its four sugar companies in 
southern and central Mozambique, bringing its total investment to 
USD 477 million. 
 
- BHP Billiton and the South African Industrial Development 
Corporation are expected to invest an estimated USD 300 million in 
the Corridor Sands titanium project in Chibuto, Gaza Province to 
extract 250,000 tons of titanium slag per year. 
 
¶6. (SBU) Mozambican investment in South Africa, on the other hand, 
is negligible, but not because of any barriers imposed by the SAG. 
Prouty said that Mozambican companies do not have the capacity to 
compete in South Africa.  Mozambican High Commission in South Africa 
Economic Attache Godinho Alves confirmed that while he sees 
opportunities for Mozambican companies in the areas of public works 
or services, there is a general lack of financing for these 
companies to compete in South Africa.  The Mozambican Government is 
appreciative of South African investment and believes it has few 
options to address the considerable trade imbalance. 
 
¶7. (U) "South African" mega projects have played a significant role 
in increasing Mozambique's overall trade with the rest of the world, 
accounting for about 72 percent of exports and 17 percent of 
imports.  In particular, the development of Mozambique's natural gas 
deposits has led to a dramatic increase in extractive-industry 
exports, which has boosted the balance of payments and created the 
foreign exchange needed to support Mozambique's overall development. 
 The mega projects have also encouraged further investment in 
Mozambique.  The GRM confirmed that South African foreign direct 
investment inflows increased significantly from 2006 to 2007. 
 
(U) Private investment by South African companies in tourism 
activities in Mozambique is also on the rise, particularly since the 
two countries eliminated visa requirements in 2006.  South 
African-owned guest lodges, restaurants, and tourism operators are 
now firmly established in several regions of Mozambique, offering 
numerous options to the burgeoning number of South African tourists 
visiting the beaches in southern Mozambique.  The Mozambican 
Ministry of Tourism estimated that nearly one million tourists 
visited Mozambique in 2007, of which South Africans represented the 
great majority.  South African Airways operates two daily flights 
between Johannesburg and Maputo.  Mozambican Airlines operates two 
daily flights, and has increased the number to four on Wednesdays 
and Fridays to meet the growing demand. 
 
--------------------------------------- 
SA Watching Mozambique Energy Expansion 
--------------------------------------- 
 
 
¶8. (U) Recent developments in Mozambique could pave the way for an 
even closer energy relationship between the two countries in the 
midst of the worst power crisis in South African history, and the 
increasing regional demand for electricity (estimated at 1,000 MW 
per year) and alternative energy sources, such as natural gas and 
biofuels.  South African state power company ESKOM currently imports 
approximately 1,400 MW of the 2,000 MW generated by Mozambique's 
Qapproximately 1,400 MW of the 2,000 MW generated by Mozambique's 
Cahora Bassa Hydroelectric Plant under a low-cost, long-term 
contract.  Some 950 MW is then "re-exported" to Mozambique to 
provide electricity to the Mozal Smelter. 
 
¶9. (U) In mid-2007 the GRM announced several ambitious investments 
in the country's energy sector to increase generation capacity, 
including a 750 MW gas-fired power station in Inhambane province; a 
2,000 MW coal-fired power station in Tete Province; the new 1,200 MW 
Mpenda Nkua hydroelectric plant in Tete Province; and an expansion 
of the Cahora Bassa dam, expected to increase capacity from 2,000 MW 
to an estimated 14,000 MW should all phases of the expansion be 
implemented.  None of these projects currently involve South African 
investment, but the ongoing energy shortages in South Africa suggest 
the SAG will have an interest in increasing its electricity imports 
from Mozambique. 
 
¶10. (U) South Africa's SASOL is investing USD 160 million to expand 
its natural gas facilities in Mozambique and construct a gas 
compression station, aimed at providing natural gas for a new 
gas-to-liquids plant in South Africa.  All of the above projects are 
expected to increase the supply of gas from Mozambique to South 
Africa by an estimated 20 percent (from 120 to 147 gigajoules per 
year) by 2009 and will ultimately satisfy a quarter of the fuel 
needs of South Africa's Gauteng and Mpumalanga provinces. 
 
PRETORIA 00000638  003 OF 003 
 
 
 
------------------------------------ 
Maputo Corridor an Impetus for Trade 
------------------------------------ 
 
 
¶11. (SBU) South Africa has invested significantly in transport 
infrastructure projects along the Maputo Corridor, which links 
Mozambique's deep water ports of Maputo and Matola to South Africa's 
industrial Gauteng Province.  Maputo Corridor Logistics Initiative 
CEO Brenda Horne told econoff that since 1998 key investment 
projects include the N4 toll road from Pretoria to Maputo, the 
upgrading of the railway line from the Lebombo/Ressano Garcia border 
post to Maputo, the upgrading of the Maputo Port, and the dredging 
of the Maputo harbor.  Another major development is the current 
construction of a "one-stop border post" set to begin operation in 
¶2010.  The streamlined border post will cut customs clearance times 
by an estimated 50 percent.  Such improvements have already been a 
major catalyst for increased trade between the two countries. 
 
¶12. (U) The Maputo port is closer to Johannesburg/Pretoria by road 
and rail than the ports of Durban and Richards Bay in Kwazulu Natal 
Province, and recent investments by South African shipping and 
logistics company Grinrod demonstrate confidence in the Maputo 
Port's potential as an alternative to the regional corridor from 
Gauteng to Durban.  Grinrod, which owns a 12 percent share in the 
consortium that runs the Maputo port and a 95 percent share of the 
Maputo coal terminal, has invested USD 40 million into the Maputo 
harbor and has plans to invest a further USD 80 million through 
¶2010.  The investment includes construction for a car storage 
terminal with an annual capacity of 250,000 cars.  Such an expansion 
appears to be attracting the attention of international car 
companies with factories in South Africa.  BMW SA, Toyota, and 
Nissan have all indicated interest in using the Maputo port as an 
alternative to the congested car terminal at Durban. 
 
------- 
COMMENT 
------- 
 
¶13. (SBU) South African investment in Mozambique has and will 
continue to spur Mozambican economic growth and assist in developing 
local industry and supply chains.  Increased energy and 
transportation trade and investment will also contribute positively 
to regional integration mechanisms such as the Southern African 
Development Community and the Southern African Power Pool. 
 
¶14. (U) This cable was prepared jointly by Embassy Pretoria and 
Embassy Maputo.