Country Commercial Guide 2006

Chapter 4: Leading Sector for U.S. Export and Investment

Commercial Sector

• Natural Gas/Oil and Bio-Diesel
• Mining
• Electric Power Generation
• Telecommunications
• Construction Equipment, Architecture, Engineering and Construction Services
• Ports and Railroads
• Agricultural Machinery
• Food Processing and Packaging Equipment
• Autos, Light Trucks, Vans, Trucks, Trailers, Buses

Agricultural Sector

• Agricultural Sectors – Wheat, Edible oils, Corn, Rice, Processed Foods and Horticulture/Nuts

Natural Gas/Oil and Bio-Diesel      

Considerable oil and gas exploration possibilities exist in the provinces of Gaza, Inhambane, Sofala, Zambézia, Nampula, Cabo Delgado, and related offshore areas. The government opened a bidding round in July 2005 for the exploration of several offshore blocks in an area known geologically as the Rovuma Basin, named for the Rovuma river that forms Mozambique’s northern boundary with Tanzania. On January 31 the government announced that it was reviewing bids from seven companies, including one American company.  A winner is to be selected in March.

In the south, the Pande gas field is a proven world-class natural gas deposit, with reserves of over 3.5 trillion cubic feet. SASOL (South Africa) completed construction of a natural gas pipeline from the Pande and Temané gas fields to its synfuel plant in Secunda, South Africa in 2004. In early 2005 SASOL routed some of this gas back to Mozambique through a newly built gas pipeline running from South Africa to Maputo (paralleling the highway from the border). 

The Mozambican government has rights to several out-take points on the pipeline and is actively seeking investors in energy-intensive projects to use the natural gas.

Investors are now beginning to explore the investment possibilities of bio-diesel in Mozambique.  While no large-scale investments are currently in place, this is an exciting new area for development.

Mining        

Mozambique has commercially important deposits of coal (high quality coking coal), iron ore, titanium ore, apatite, graphite, marble, bentonite, bauxite, kaolin, copper, gold, and tantalum ores. Two of the largest investment projects in development are mining and processing ventures of “heavy sands” deposits, essentially mineral deposits brought down by rivers and built up into sandy bluffs. The Moma Heavy Sands (Kenmare Resources, Ireland) and Corridor Sands (Australia) projects together will require more than $1 billion in investment in the next few years. Lack of electricity at the moment is a key constraint on the Corridor Sands project, and may delay its development for several years while a source of power is found. 

Companhia Vale do Rio Doce (CVRD), a large Brazilian coal company, won rights to the world-class Moatize coal field in Tete province in late 2004.  There may be possibilities for the provision of coal mining equipment for its operations.  CVRD also is considering constructing a coal-fired power station, perhaps 1,600 megawatts in size.  The building of this station would offer additional opportunities in Mozambique’s construction sector.

Mozambique’s mineral potential is largely unexploited, which explains why equipment sales in this area have been historically very small.  Extensive exploration will be necessary to uncover the nation’s full resource potential. Important commercial opportunities exist for foreign investors interested in developing known deposits or in doing exploration work.

Electric Power Generation                           

Mozambique has considerable hydropower potential. The Mozambican government is actively seeking investors to build a northern powerhouse at the Cahora Bassa dam (the southern bank powerhouse is in operation) and to construct a second dam lower down the Zambezi at Mepanda Uncua. 

There is increasing regional demand for power, especially in South Africa. The electricity supply agreement between Cahora Bassa and South Africa’s ESKOM was revised in early 2004, yet electricity is still supplied for only a fraction of the international and regional price. Currently the Cahora Bassa Hydroelectric Company (HCB), which manages dam operations, is 82% Portuguese-owned and 18% Mozambican-owned, but in late 2005 the Mozambican and Portuguese governments reached an agreement whereby Mozambique will acquire an 85% ownership in HCB. 

Telecommunications                

Landlines account for only 20% of all telephone numbers currently in use in Mozambique; the remaining 80% are cellular.  Mcel was the first cellular phone company in Mozambique.  In December 2003 South African cellular provider Vodacom opened a second cellular provider network. All equipment for the construction of the GSM standard network is being imported, mostly from South Africa.
 
The parastatal TDM has authority to make autonomous decisions on network upgrades, expansions and the purchase of equipment.  TDM plans to spend over $200 million on modernization and expansion of its landline network over the next three years. The centerpiece of the planned upgrade is the construction of an entirely new basic network for the central and northern regions valued at $50 million. The new trunk will be based on submarine and terrestrial fiber optic cables and microwave relay stations, and will replace the current expensive satellite relay service that is unable to handle the increasing call volume.
 
In addition to replacing its basic network, TDM is planning to expand its national service to bring coverage to rural areas and to upgrade its urban nodes. The European Union is financing a project to bring TDM coverage to all areas of Inhambane and Gaza provinces. The Arab African Development Bank is currently completing a viability study to finance a similar project in the province of Tete.

The Internet is widely available, even in provincial capitals, and is largely unregulated, with ISP providers able to bring in their own bandwidth. 

Construction Equipment, Architecture, Engineering and Construction Services           

The Mozambican construction industry continues to grow. The rehabilitation and expansion of the road and rail network is continuing, with significant donor funding from the World Bank and other organizations. Rehabilitation of port and airport facilities also figures prominently on government and donor agendas. Construction of rural health and education facilities offers possibilities for additional sales.

Caterpillar and Komatsu currently dominate the construction equipment market. Financiers of infrastructure projects show a strong preference for leased equipment with service agreements. Domestic firms, in partnership generally with South African, Portuguese or Italian companies, provide construction, architecture, and engineering services. Given the significant cost advantage, American firms interested in entering this market would do well to consider forming similar partnerships with existing local construction and design firms.

Ports and Railroads                  

The major commercial ports are at Maputo, Beira, and Nacala. Long-term operating concessions in port and rail services will involve significant expansion and equipment upgrades.  The MPDC recently assumed operation of the port of Maputo on a 15-year management concession agreement (extendable another 10 years), and is making significant infrastructure upgrades.

At Beira the port and railway parastatal, CFM, manages operations of the port; however a Dutch firm, Cornelder, took over the management of several terminals in 1998. The Beira port has made significant upgrades over the past decade.  Beira is Zimbabwe’s main port of entry to the world market. Political turmoil in Zimbabwe has slowed traffic through the port, with exports declining by approximately 40% since 2001.  Reconstruction and management of the Sena line, which links Beira with the important NW city of Tete, was given by the Mozambican government to the firms RITES and IRCON (India) in 2004. The World Bank is providing  $104.5 million in soft loans (IDA funds), with RITES and IRCON investing an additional $35 million, to restore this line. Reconstruction will require three and a half years. Given the current inoperative state of the entire length of the line, significant purchases of equipment, rails, signals, and rolling stock will be a necessary part of the process

Two American companies, Edlow Resources Ltd and Railroad Development Corp., are shareholders in the Nacala Corridor Development consortium, which manages the port of Nacala and the rail line to Malawi.  The Overseas Private Investment Corporation (OPIC) is lending the consortium $30 million to improve both the port and the rail line.  Development of the Nacala rail corridor, particularly to connect the line to the massive coalmine in Moatize, should lead to significant investment in port and railway equipment and rolling stock.

Agricultural Machinery                

More people work in the agricultural sector (generally doing subsistence farming) than in any other in Mozambique.  While commercial agriculture remains limited, it is expanding, especially in sugar, cotton, citrus, coconut, cashews, and tropical fruit crops. Diversification into non-traditional crops such as soybeans, pulses/legumes, sesame, and spices (particularly paprika) is moving forward. As moribund state-owned agricultural concerns are broken-up and privatized, new Mozambican and foreign (principally South African, but also Zimbabwean) buyers are interested in up-grading outdated agricultural equipment. The arrival of nearly 100 Zimbabwean farmers in Manica province offers another potential source of buyers. Currently, Massey Ferguson dominates the agricultural equipment market.

Food Processing and Packaging Equipment             

As Mozambique's agricultural production increases, opportunities for food processing and packaging should grow. Local companies have indicated interest in canning, packaging, and vacuum packaging equipment.  Mozambican agricultural exports to the U.S. receive U.S. tariff benefits under the African Growth and Opportunity Act (AGOA). Given the stringent phytosanitary requirements on fresh produce, the majority of opportunities are in the processed food arena, specifically the export of dried fruits, essential oils, jams/jellies, and fruit juices. Equipment for the manufacturing and packaging of such products will need to be imported.

Autos, Light Trucks, Van, Trucks, Trailers, Buses            

As Mozambique's economy gains momentum, there is growing demand for right-hand drive passenger and hauling vehicles. Toyota dominates the passenger and light truck market. City and inter-city bus service offers opportunities for vehicle sales, as does inter-city truck hauling. With road upgrades in progress, additional mass transit and goods transport vehicles will be required.  As of February 2006, 18-wheeler Freightliner brand (US) trucks were increasingly popular in Mozambique.
Agricultural Sectors – Wheat, Edible Oils, Corn, Rice, Processed Foods and Horticulture/Nuts      

Wheat

The domestic production of wheat is estimated at only 2,000 MT per annum. Estimated domestic demand for wheat in 2004 was 315,000 MT. Market requirements to increase milled flour protein levels to bake loaf bread means that 80-90% of projected imports need to be "hard" high protein varieties. Due to local climatic and soil conditions, 80-90% of regionally produced wheat is a "soft" low protein variety, creating a potential market for American wheat. Imports of American wheat are successfully sold in Mozambique on an annual basis under PL 480 programs.

Edible Oils

The domestic production of edible oils each year falls short of projected demand. Traditional import sources to make up this shortfall are Argentina, Southeast Asia, South Africa, Zimbabwe, and Malawi. Domestically produced oils, mainly coconut, groundnut, and maize combined with lesser amounts of cotton seed, sesame, and sunflower oil, generally dominate rural markets and sales to the urban poor. The growing urban middle and upper class prefer to purchase imported oils -- primarily palm, soybean, and sunflower. Regional imports make up only a small portion of imports (around 4%), creating a potential market for American crude de-gummed sunflower and soybean oils that are refined locally. Imports of American crude sunflower seed oil are occasionally sold in Mozambique under PL480 programs.

Corn
 
Corn is the staple grain in Mozambique. Barring natural disasters, total annual production usually is slightly higher than domestic demand, with excess production exported to Malawi and elsewhere in east and central Africa.  However, Mozambique both imports and exports corn.  Annual imports of up to 140,000 MT generally originate in neighboring South Africa and are shipped by train to meet urban requirements around Maputo. Despite significant improvements in production, Mozambique still has an overall cereal (corn, rice, wheat, sorghum, millet) deficit each year.

Production shortfalls in neighboring Zimbabwe, exacerbated by political problems that may continue on a more long-term basis, have created a general regional demand for cereal. Missing Mozambican imports of corn from Zimbabwe will need to be replaced in the future, and American corn may be a possibility.

Rice
 
Rice is a traditional staple in only part of Mozambique, including Zambezia and some coastal urban areas. Its popularity, however, is growing in urban areas, encouraged by cheap imports from South Asia.  American rice has been unable to compete with sales from China, Thailand, and other Asian countries. Should such sales diminish or cease, however, a potential market for American rice exists in Mozambique.
 
Processed Foods
 
The re-exportation of significant quantities of American processed food goods from South Africa to Mozambique is a hallmark of the market. Urban consumers' consumption of processed foods continues to grow. Re-exports of American goods from South Africa are combined with South African and European (largely Portuguese) goods to meet increased demand. Direct marketing of processed foods to Mozambican importers may be a possibility.

Horticulture, Nuts

Mozambique has a large, as-yet unrealized, horticultural/agricultural potential. Citrus fruits, sugar, cashews, macadamias, lychees, tropical fruits, vegetables, tobacco, and flowers (specifically roses) are all potentially commercially viable cash crops in Mozambique. The cashew sector performed well in 2004.growing substantially, and processors have formed a marketing association. Sugar production, largely destroyed during the civil conflict, has been rehabilitated and expanded. A macadamia nut plantation (Tenga, Ltd.) is operating in Niassa Province with American and South African investment. Inaugurated in 2003, this farm expects its first crop in 2008. In addition, there is potential to expand into non-traditional crops such as pulses/legumes, sesame and spices (paprika). Foreign investment in agricultural production will be necessary to make this a reality. The domestic and South African markets are capable of absorbing a modest amount of production. There are exports to the European market of citrus fruits and flowers. AGOA allows duty-free entry to the American market for most fresh produce, but phytosanitary regulations must be met -- a process that takes significant time. Agricultural processing of these same crops may be a more immediate way to take advantage of the American market. Dried fruits, essential oils, fruit peels, jams/jellies, canned fruits, and juices are all possible products that could be profitably manufactured and sold from Mozambique. Currently, almost 100 Zimbabwean farmers have established farms and produced varied crops in Manica and Tete Provinces. This influx of investment, technology, and know-how has created significant production gains for the central regions of Mozambique.