VZCZCXRO3079
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0972/01 2841149
ZNR UUUUU ZZH
R 101149Z OCT 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9443
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0259
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 04 MAPUTO 000972 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECON EINV MZ
SUBJECT: RESPONSE TO USITC STUDY ON SUB-SAHARAN AFRICA: 
MOZAMBIQUE 
 
REF: A. MAPUTO 837 
     ¶B. STATE 85109 
 
¶1.  (SBU)  SUMMARY: This cable responds to Ref B's request to 
provide an overview of the current physical infrastructure 
conditions of land transport (road and rail), maritime 
transport, and electricity in Mozambique to include capacity, 
state of repair, and state of technology; an overview of the 
current conditions of associated infrastructure service 
providers in logistics, port services, and electricity 
distribution, including ownership structure and market 
conditions; an overview of principal impediments, including 
any soft infrastructure conditions, such as customs 
procedures; an overview of efforts to improve conditions in 
land transport, maritime transport, and electricity 
infrastructure via policies, regulations, investment, and/or 
regional integration; and an analysis of the effect that the 
condition of Mozambique's infrastructure has on export 
competitiveness. 
END SUMMARY. 
 
¶2.  (SBU)  Mozambique's export-driven economic growth, 
averaging 8 percent since the end of the civil war in 1992, 
continues to be driven by its natural resource wealth, with 
Aluminum, Hydropower, and Natural Gas accounting for a 
majority of the value of total exports.  Natural resource 
wealth has spawned a series of mega-projects aimed at 
expanding exports.  Despite strong growth, Mozambique 
continues to be a least developed country of roughly 20 
million inhabitants with per capita GDP for 2007 at $350, 
with development in the Maputo area far surpassing the rest 
of the country.  Principal export commodities in 2007 
included aluminum, cashews, prawns, cotton, sugar, citrus, 
timber, bulk electricity, and natural gas, with exports 
totaling $7.7 billion. 
 
¶3.  (SBU)  U.S. companies are the leading source of Foreign 
Direct Investment (FDI), with investments of over $5 billion 
over the last five years.  South Africa has invested more 
than $300 million since 2003, China has contributed $69 
million, and India has contributed $14 million in the same 
period.  According to the World Bank, FDI accounted for the 
equivalent of 42 percent of Mozambique's $8 billion GDP in 
2007, and future FDI flows will continue. 
 
¶4.  (SBU)  There are several mega projects currently driving 
FDI flows.  Moatize in Tete Province is believed to be the 
largest unexplored coalfield in the world with estimated 
reserves of 2.5 billion tons.  Temane gas fields near Maputo 
are being explored by South African company SASOL, and the 
Pande gas fields at Inhambane are already producing. 
Hydroelectrica de Cahora Bassa's (HCB) 2,000MW current 
capacity is expected to be augmented by a new 1,600MW dam 
also on the Zambezi River and an anticipated 1,600MW dam at 
Mpanda Kua. The heavy sands project at Moma in Nampula takes 
advantage of one of the largest titanium-bearing 
heavy-mineral sands deposits in the world.  Exploration for 
uranium, gold, diamonds, and potentially on and off-shore 
petroleum reserves is ongoing. 
 
--------------------------------------------- - 
CONDITION OF LAND AND MARITIME INFRASTRUCTURE 
--------------------------------------------- - 
 
¶5.  (SBU)  Mozambique's land infrastructure includes 3,524 
miles of paved roads, and 14,988 miles of unpaved roads which 
become impassable during the rainy season.  The road network 
is managed by an autonomous road agency, the National 
Administration of Roads (ANE), which is financed through a 
dedicated road fund.  There are 1,942 miles of railway, with 
major lines connecting South Africa, Zimbabwe, and Malawi to 
Mozambique's three largest ports.  Railway lines along the 
three main East-West corridors are managed by the parastatal 
Mozambique Ports and Railways (CFM), which in turn has 
delegated management to a consortium of private companies 
which are refurbishing the railways after years of neglect 
and sabotage during the civil war. 
 
¶6.  (SBU)  Mozambique is geographically well placed to act as 
a regional shipping hub for southern and central Africa.  The 
main ports include Maputo, with linkages to regional economic 
powerhouse South Africa.  700 miles north, another East-West 
corridor links the Port of Beira with Zimbabwe.  1500 miles 
north of the capital, the deep water Port of Nacala in 
Nampula Province provides potentially significant linkages to 
Malawi and Zambia.  While most developed infrastructure 
corridors run 
East-West, there is one main artery (EN1) running North-South 
 
MAPUTO 00000972  002 OF 004 
 
 
which connects Maputo to Nacala, with road quality 
deteriorating the further north traveled.  Port expansion is 
a high priority for the Government of Mozambique (GRM) which 
has issued tenders for over $1 billion in upgrades, to 
include modernization of road and rail infrastructures 
linkages. 
 
¶7.  (SBU)  The Port of Maputo, run by 60 percent stakeholder 
Dubai Ports World (DPW) is the largest facility by volume in 
Mozambique, with an expected volume of 8 million tons of 
cargo in 2008, up from 6 million tons in 2007, well below the 
pre-civil war high of 15 million tons.  Shipping and 
logistics group Grindrod has made a substantial investment in 
the Maputo port, seeing it as a viable alternative to Durban 
with a potential capacity of 40 to 50 million tons per year 
in the next 10 years.  Grindrod and DPW, both stakeholders in 
Portus Indico which in turn is the majority shareholder of 
the Maputo Port Development Company, are developing a Maputo 
Port Master Plan, which will be made public in early 2009. 
Though not finalized, the $300 million expansion plans for 
the Port of Maputo will include a ferrochrome terminal, car 
terminal, liquid bulk terminal, and coal terminal. 
 
¶8.  (SBU)  Thanks to its geographical location and proximity 
to South Africa, the port as well as the Maputo Development 
Corridor leading through the border at Ressano Garcia to 
South Africa's industrial center in Gauteng province, 
provides an efficient transportation connection for export of 
South African goods.  Shipping schedules to the Port of 
Maputo are not as frequent as Durban however, meaning that 
international cargo is often taken to Durban, and reloaded 
there to take advantage of more frequent sailing times.  The 
rail line along the Maputo corridor has been rehabilitated, a 
natural gas line links Temane gas fields with consumers in 
South Africa, and a $600 million petroleum pipeline between 
the oil terminal at Matola and South Africa is expected to 
handle 350,000 barrels per day and should be operational by 
¶2015.  The GRM has also announced the approval of plans to 
construct an $8 billion oil refinery in the Corrdior, with 
anticipated production of 350,000 barrels per day by 2015. 
 
¶9.  (SBU) The Port of Beira and the Beira Corridor, acts as 
the principal artery for goods to Zimbabwe.  The corridor was 
severely damaged by the 17-year civil war and more recently 
by Cyclone Eline in 2000.  Due to the economic collapse of 
Zimbabwe, current rail traffic only includes one freight 
train traveling in each direction per day.  Roads are in good 
condition, allowing for truck transportation of containers 
and fuel between Beira and Zimbabwe.  The Port of Beira 
suffers from lack of maintenance, particularly dredging, 
resulting in dangerous navigation for deep-drafted cargo 
ships.  The reopening of coal mines at Moatize in Tete 
province means that the Indian firm Rites and Ircon plans to 
complete a spur line connecting the fields to the Beira 
Corridor and a new loading facility expected to handle 20 
million tons of coal for export.  Should Zimbabwe's economy 
recover, the Beira corridor would likely see heavy use 
related to aid and reconstruction. 
 
¶10.  (SBU)  The Port of Nacala in Nampula province is a 
world-class natural deep water port with relatively poor road 
connections to Malawi and Zambia.  In 2009, construction on a 
$5 billion 300,000 barrels per day oil refinery will begin, 
managed by the largest investor in the project, 
U.S.-based Ayr Logistics.  Plans are also underway to develop 
a Nacala Special Economic Zone (SEZ) which will help the port 
attract manufacturing and develop infrastructure linkages 
based on anticipated offshore and onshore petroleum findings, 
with exploration currently ongoing.  U.S.-based Anadarko 
Petroleum, which has already invested $500 million, is one of 
four partners carrying out seismic studies in the 
largely-offshore Rovuma Basin near the Mozambique-Tanzania 
border.  If significant findings occur, drilling could begin 
by 2009, with production to follow between three to five 
years after that (by 2014).  These four companies will likely 
use the smaller port at Pemba for reasons of efficiency in 
the exploratory and drilling stages of their work in 
Mozambique. 
 
--------------------------------------- 
CONDITION OF ELECTRICITY INFRASTRUCTURE 
--------------------------------------- 
 
¶11.  (SBU)  Parastatal Electricity of Mozambique (EDM) has 
monopoly control over the national grid.  While Mozambique 
generates significant electricity for export to South Africa, 
Swaziland, and Zimbabwe from its largest dam, HCB (with 
2,000MW and the potential to generate 14,000MW) on the 
 
MAPUTO 00000972  003 OF 004 
 
 
Zambezi river in the Province of Tete, transmission remains 
problematic due to a lack of transmission lines running to 
the country's industrial center in the South.  Instead, 
transmission lines run west from HCB to the South African 
ApoL;XQ9Qbillion on a new 
transmission line from Tete Province to Maputo.  While 
feasibility studies have been completed, funding and a 
timeline for project completion have not yet been finalized. 
In May 2008, HCB announced plans to build new transmission 
lines to the Zambian border, allowing direct sale of 
electricity to its neighbor. 
 
--------------------------------------------- ----------- 
CONDITION OF ASSOCIATED INFRASTRUCTURE SERVICE PROVIDERS 
--------------------------------------------- ----------- 
 
¶12.  (SBU)  Kudumba, a port services company, represents one 
of the most significant associated infrastructure service 
provider challenges in Mozambique.  In 2005, Kudumba won a 20 
year concession contract with the GRM to provide border 
security via a high-energy x-ray system.  In June 2006, the 
company began operations at the Port of Maputo, implementing 
a practice of 100 percent scanning (except for a few cleared 
freight-forwarding companies) of all goods that are imported, 
exported, or transited through Mozambique. 
 
¶13.  (SBU)  This compulsory scanning has added significantly 
and unnecessarily to the cost of doing business in and 
through Mozambique, with costs range from $20 to $100, 
depending on the size of the container scanned.  On a recent 
visit to the Port of Maputo, PolOff saw South African 5-ton 
solid blocks of granite destined for export to the EU that 
were subject to mandatory scanning.  The business community 
continues to complain that the Kudumba scanner is more of a 
revenue generator than a border security program, pointing 
out that the company is 35 percent owned by SPI, a holding 
company for the ruling FRELIMO party.  While currently 
operating in Maputo andPI]A2W-QQQ----------------------- 
 
¶14.  (SBU)  Principal impediments to export competitiveness 
include a lack of usable infrastructure; weak human capital 
due to poor levels of education; an unwelcoming business 
environment; rent-seeking behavior by the business-political 
elite; corruption at all levels of government; and antiquated 
labor and land ownership laws.  Mozambique's history of 
colonization followed by a turbulent independence movement 
and years of Marxist rule during a violent civil war in which 
infrastructure was a target of guerrilla groups means that 
Mozambique started in 1992 from a very lowbase, not only in 
terms of physical infrastructure, but also soft 
infrastructure.  For example, poor education means illiteracy 
rates reach 60 percent, there are roughly 600 qualified 
doctors for a country of 20 million, and the health system 
cannot effectively address high prevalence rates for HIV and 
other treatable diseases, presenting a major impediment to 
work force continuity. 
 
¶15.  (SBU)  Mozambique's labor laws, a vestige of the 
country's Marxist-Leninist past, also present problems for 
foreign investors.  Protection of worker rights is central to 
the law, with inflexible hiring and firing rules, further 
compounded by a lack of technically qualified third-country 
nationals.  As a result of restrictive labor laws and weak a 
weak education system, foreign investors find if very 
difficult to either find qualified Mozambicans, or legally 
hire qualified third-country nationals.  Many provisions in 
the labor law make for an uninviting environment for 
investment.  As a result, under current labor laws, foreign 
investment is best suited for low skill extractive and 
agricultural industries. 
 
¶16.  (SBU)  The concept of private land ownership does not 
exist in Mozambique.  In December 2006, the Government of 
Mozambique (GRM) modified property laws allowing for 
renewable 100 year leases, minimizing restrictions on 
transferability of land tenure titles.  In rural areas, the 
government grants 50-year concessions for land use.  Lack of 
land ownership causes significant problems for credit 
markets, which often require high percentage 
collateralization of loans.  These land ownership 
 
MAPUTO 00000972  004 OF 004 
 
 
prohibitions are a challenge to potential investment in the 
agricultural sector, with an estimated 89 million acres of 
arable land, of which only 10 percent is being used. 
Mozambique's 60 major rivers mean that over 8 million acres 
of land is available as potentially irrigated land.  The 
Zambezi valley is expected to see significant Chinese 
investment in irrigated farm land for rice production. 
 
--------------------------------- 
EFFORTS TO IMPROVE INFRASTRUCTURE 
--------------------------------- 
 
¶17.  (SBU)  The World Bank's International Development 
Association (IDA) has financed infrastructure projects in the 
three main East-West transport corridors, as well as 
secondary roads, rehabilitating over 4,000 miles of road 
infrastructure at a cost of $965 million between 1992 and 
2003, resulting in a 50 percent reduction in road travel 
times on average. 
 
¶18.  (SBU)  While many donors have focused on infrastructure 
enhancement projects, the Millennium Challenge Corporation 
(MCC) has signed a compact to provide $507 million over five 
years, focused on water and sanitation, road, land tenure, 
and farmer income support projects in less-developed northern 
Mozambique.  Water and Sanitation projects of $204 million 
will increase access to safe drinking water and reduce the 
spread of water-borne diseases in Zambezia, Nampula, and Cabo 
Delgado provinces, with a projected impact of assisting 
nearly 2 million Mozambicans by 2015.  The road 
transportation project, valued at $176 million, will expand 
connectivity across the northern region, in part 
rehabilitating 491 kilometers of EN1, effecting 2.3 million 
Mozambicans.  The $39.1 million land tenure project will 
further rationalize land tenure policy and provide better 
land-related information systems and services, benefiting 1.9 
million Mozambicans by 2015. 
 
--------------------------------------------- -------------- 
ANALYSIS: INFRASTRUCTURE'S EFFECT ON EXPORT COMPETITIVENESS 
--------------------------------------------- -------------- 
 
¶19.  (SBU)  Physical infrastructure and soft infrastructure 
deficiencies both significantly hamper export-driven economic 
growth in this geographically well-situated, resource-rich 
country.  Significant investments are in the pipeline to 
develop Mozambique's land and maritime transportation network 
as well as its electricity infrastructure.  The most 
challenging aspect of infrastructure development will be 
improvements to soft infrastructure issues that have more to 
do with political will than regulatory changes. 
 
¶20.  (SBU)  Post expects that regulatory changes that result 
in improvement of the business climate will continue at a 
slow pace due to the current regime's historically socialist 
perspectives (particularly on land and labor issues), though 
the Guebuza administration's significant business interests 
mean that it is in their interest to continue to improve the 
country's export competitiveness.  FDI flows will continue to 
increase, particularly to mega-projects, not necessarily 
because of the quality of infrastructure or ease of doing 
business, but because of Mozambique's natural resource 
wealth, including its large tracts of arable land. 
Mozambique is still some years away from moving up the value 
chain towards intensive manufacturing due to a lack of 
infrastructure and a dearth of skilled workers, though tariff 
liberalization in the SADC region could mean that South 
African firms may find it competitive to move their 
manufacturing operations to Mozambique, where labor costs are 
significantly lower. 
Amani