A safe, prosperous and beautiful Beira.

Transcription

1 Project Beira Masterplan Subject Economische/financiele paragraaf Client Rijksdienst voor Ondernemend Nederland Date 22 October 2014 Status Final Ref PVWA14051 A safe, prosperous and beautiful Beira

2 Colophon Author Frank Maasson Status Final Date 22 October 2014 Checked by Name Port Consultants Rotterdam B.V. K.P. van der Mandelelaan MB Rotterdam The Netherlands CoC no: Tel: +31 (0) All rights reserved P 1/37

3 Contents Executive summary Background General economic situation of Mozambique GDP growth Income per capita Mozambique Foreign Direct Investment/main sectors FDI inflows and share of mega projects (million dollars) CPI licensed projects by sector, excluding mega-projects, Outlook for economy (current role and future role) Main issues related to the further development of the country General economic situation in Sofala/Beira GDP growth Development of main sectors and outlook Agricultural sector Limestone and cement production Income per capita Investments in Beira Competitive position of Beira Port Natural Hinterland Competing Ports Competing Corridor developments Development port of Beira Containers Recent History Forecast Other commodities Worldwide coal demand and supply Position of Mozambique coal Position of Beira for coal exports Opportunity and threats for the port Recent and planned investments in Port of Beira Recent investments in Port of Beira P 2/37

4 5.3.2 Planned investments in the Port of Beira Outlook for Beira economy (current role and future role) Annex 1, summary of telephone interviews Tables Table 1: Land requirement... 6 Table 2: Factsheet Mozambique... 8 Table 3: CPI licensed projects Table 4: Agricultural potential per annum Table 5: Competing Ports Table 6: Recent investments in Beira Table 7: Planned investments Beira Table 8: Shortage of land Figures Figure 1: GDP growth rate Mozambique... 9 Figure 2: Average growth GDP compared... 9 Figure 3: Income per capita Mozambique Figure 4: Foreign Direct Investment Mozambique Figure 5: FDI inflows and share mega projects Figure 6: GDP growth per sector Sofala Figure 7: GDP growth Sofala Figure 8: Sofala GDP sectors Figure 9: GDP growth Sofala per sector Figure 10: Areas with agricultural potential Figure 11: Sugarcane production Mozambique Figure 12: Income per capita Sofala Figure 13: Employment per sector Beira Figure 14: Projects approved in Sofala by CPI Figure 15: Approved projects per sector in Sofala Figure 16: Natural hinterland Beira Figure 17: Competing ports Figure 18: Competing corridors Figure 19: Container traffic Figure 20: Container scenario s Figure 21: Forecast other scenario s Figure 22: Map world coal trade Figure 23: Infrastructure projects Figure 24: Infrastructure projects P 3/37

5 Executive summary General economic situation of Mozambique The general economic situation of Mozambique is positive. The average GDP growth of the country has been 7,2% per year over the last decade and is higher than any of its neighbors. The per capita income is increasing steadily but is still amongst the lowest in the world. Mozambique is recognized as one of the fastest growing economies of the continent. The main drivers of the growth are large scale mineral project (gas, mineral sands and coal), infrastructure projects, agriculture and the transport sector. Foreign direct investment has increased significantly over the last 5 years to a level of 6 billion dollar in 2013.The country frequently suffers from natural disasters like cyclones and flooding destroying crops and infrastructure. There are concerns about the fiscal revenue of the country covering only 65% of the annual budget, increase in external debt and issues related to equal sharing/benefitting of the increasing wealth amongst the population. The political situation has been stable for many years. In anticipation of the presidential elections planned in October some arguing between Frelimo, Renamo and MDM took place but with the 60% share for Frelimo as outcome the stability will continue. General economic situation in Sofala/Beira Beira is the capital of Sofala province. The province houses 8% of the population and generates 12% of GDP. The growth of GDP of Sofala province is in line with the growth of the country of around 7% per annum. The per capita income in Sofala is above the average of the country. The main economic sectors in Beira are 1) Trade, accommodation & restaurants, 2) Services, and 3)Transport and communications. The sector with the highest growth rate is 1) Transport and communications, 2)Electricity and water, and 3) Trade, accommodation & restaurants. According to CPI between 2009 and ,2 bln dollars has been invested in Sofala province of which 40% came from FDI, 18% were national investments and 42% were loans. Based on research from the consultant around 700 mln dollar of the investments were related to the transport and port sector in Beira. The mayor of Beira is from the MDM and was elected for a second term in His party won the majority (67%) in the city council in 2013 allowing him to operate more efficient than before when there was a Frelimo majority. Competitive position of Beira Port Beira port and connecting corridors serve a natural hinterland which primarily contains central Mozambique, Northern Zimbabwe and Southern Malawi. However, Beira also serves as a port for Zambia and to a lesser extend DRC and Botswana. Over the years the cargoes from Mozambican, Malawi and Zambia have increased whereas cargoes from Zimbabwe have reduced, although the latter are picking up again recently. As a result of growing economies in the SADC region demand for infrastructure has increased including port infrastructure. Ports have been expanded and new corridors have been developed potentially competing with the port of Beira. Significant new developments are the investments in the Port of Nacala and Nacala railway line, mainly on behalf of the coal industry in Tete province. Other competing developments are the development of the Walvisbay (Namibia) and Benguela (Angola) corridor both aiming to serve Zambia and DRC. Plans exist to develop new ports and railway lines P 4/37

6 in Mozambique (Macuse port, further expansion of Nacala port) which will initially compete with Beira for coal exports but eventually also for other cargoes. Development port of Beira Beira port has shown a steady growth over the last 15 years which was accelerated in 2010 after the dredging of the entrance channel to the port. Where before 2010 annual growth figures would be around 10% suddenly the growth accelerated to 30 to 50% depending on the commodity. Where before the bottleneck to the port has been the entrance channel now the capacity of the port itself soon became the bottleneck. The concessioning of both the Sena and the Machipanda railway line to Ricon did not help the situation. Rail capacity actually decreased as a result of the poor performance of Ricon and eventually the concession contract had to be withdrawn from the consortium. At more or less the same time the output of the coalmines in Tete came on the market putting tremendous pressure on both the port and the Sena railway line to provide capacity. In the meantime significant progress has been made. The capacity of the Sena line increased to 5 6 mln tons per annum and the capacity of the coal terminal in the port increased equally. Investments in the port have been done in new container cranes, additional container storage area, a grain terminal, a dredger to maintain the draft of the entrance channel, a tug boat, a pilot boat, new rolling stock for the railways, CCTV security, a tobacco warehouse, various fuel storage tanks and a new fertilizer terminal is being constructed. Outside the boundaries of the port the increased throughput of the port leads to investments and growth as well such as investments in trucks, Inland Container Depots, a Special Economic Zone, multiple warehouses and other service providers related to the port. Main issues related to the further development of Sofala/Beira Despite the developments and investments indicated above there is still a serious shortage of infrastructure, money and skills. Investments are required in rail and road infrastructure, additional port capacity, power, power network, dams for irrigation, coastal protection and other water related projects. Credit is not all that easily available in Beira and the skills levels need to be increased to meet the growing demand and increasing standards. Not to mention the political issues and institutional issues. Beira/Sofala has over the years always had a mind of its own which eventually has led to poor relations and lack of cooperation with the central, Frelimo-led government. Evidence of this can be found for instance in the difficulty to combine dredging activities in the entrance channel to the port with the requirement for sand to level land in the city of Beira, Emodraga (state owned) versus MDM city council. Another example is the execution of a $50 mln Worldbank funded sewage plan for the city without involvement of the municipality. Outlook for Beira economy The main drivers for the Beira economy are mineral resources, agriculture and the port. The known mineral resources in the country seem to increase by the week. Almost every week a new discovery is published in the media mostly in the Tete and Cabo Delgado provinces. The demand for the resources comes largely from India and China. In that respect the future of coal exports from Mozambique is not all that clear. World market prices are low and the transport cost in Mozambique from the mines to the port is relatively high making the coal not competitive on the world market. Apart from the transport cost also environmental issues and alternative energy sources (shale gas) play a role. P 5/37

7 The Mozambican government is focusing on developing its agricultural potential and although the development is not as booming as in the mineral sector, growth is projected and investments are taking place such as Beira Agriculture Growth Corridor project, sugar plantations, cattle production, timber, fishing and rice production. Apart from the mineral findings and the developments in the agriculture; the economies around Mozambique are forecasted to grow all, requiring additional port and transport capacity. Lately increased exports/imports from Zambia, Malawi and Zimbabwe are evidence of that. Looking at the structure of the Mozambican economy the structure is likely to change in the years to come and in a way needs to change for political reasons such as employment and sharing of benefits/growth. The traditional pattern of raw materials being exported will eventually change to exports of half products. The pattern of imports of consumption articles and machinery will eventually at least partly change to own production because the size of the market will justify investments in these sort of production facilities. Although government policies will (have to) play a role in order to support this change. Recent investments for instance in a cement factory and a cigarette factory are evidence of this change. Another structural change to be expected is the increase of inter African trade. Shortage of land The shortage of suitable land in Beira is a recurring subject for all housing, port and industrial projects. There is plenty of land available in and around Beira but it is low laying, vulnerable to inundation and not connected to the existing utility and road networks. In view of the above economic analyses, both the PMP and the BMP indicate and calculate a requirement for expansion. Housing Growth % 2,25 4,25 Scenario low high Population Hectares Industrial area Growth % 4 8 Scenario low high Hectares Port Area Growth % 4 8 Scenario low high Hectares net Hectares gross Table 1: Land requirement From an economic perspective it is relevant to develop these areas in line with demand in order to invest efficiently. It also makes sense to approach these expansions in an integrated manner whereby all basic utilities are made available, sewage is connected, roads and railroad are connected all in line with an overall view about the future development of the city and port. An integrated approach will save cost and time and safeguard the interest of all involved. P 6/37

8 1 Background During 2013 with the help of program Water Mondial a masterplan has been developed for the city of Beira. The Beira masterplan (BMP) aims at sustainable city development, urban water management and coastal protection. The BMP provides a sketch for urban and industrial development of Beira for the next 25 years. During the same period a Port masterplan (PMP) has been developed by Aurecon. The BMP and PMP will be presented to potential investors during the second half of 2014 at an investors conference. Objective The objective of this assignment is to add an economic analyses to support the presentation to potential investors at the investors conference. Approach The assignment has been carried out mainly as a desk study making use of information available in the public domain, combined with the data base of the author himself. Some telephone interviews were conducted with representatives of the business society in Beira to integrate their view into the report (see Annex 1). P 7/37

9 2 General economic situation of Mozambique Factsheet of Mozambique Table 2: Factsheet Mozambique The above graph shows that the economy is developing well. That the country still has a lot of work to do in order to improve their ranking on in the social and governance indicators. And, that the majority of foreign trade is dependent on a few sectors. Source Rabobank, October P 8/37

10 Percentage Port Consultants Rotterdam BV 2.1 GDP growth GDP growth rate Mozambique GDP growth rate Mozambique Figure 1: GDP growth rate Mozambique The above graph shows a steady growth of the economy over the last 10 years and a healthy outlook for the next three years of some 8,5% GDP growth. Source: WB 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 Av. GDP Growth rate ,0 Mozambique Zambia Malawi Zimbabwe South Africa Figure 2: Average growth GDP compared Note: average growth Mozambique over last 8 years is 7,2% The above graph shows that GDP growth in Mozambique is higher than in the neighbouring countries over the last 8 years. This is partly due to the fact that the economy had to recover from the civil war (so had to come from far) but also due to the policies followed and implemented by the government of Mozambique. Source: WB P 9/37

11 Million Usdollar Usdollar Port Consultants Rotterdam BV 2.2 Income per capita Mozambique 600 GNI (Income per capita) GNI (Income per capita) Figure 3: Income per capita Mozambique The above graph shows that the income per capita has grown substantially over the last 8 years while at the same time the population grew with some 3% per annum. Source: WB 2.3 Foreign Direct Investment/main sectors 7000 Foreign Direct Investment Foreign Direct Investment Figure 4: Foreign Direct Investment Mozambique The above graph shows that from 2010 onwards the FDI has grown substantially. Source: WB P 10/37

12 2.3.1 FDI inflows and share of mega projects (million dollars) Figure 5: FDI inflows and share mega projects Above graph indicates that a substantial part of FDI is related to Mega projects of which Mozal Aluminium Smelter in Maputo was the first, followed by Sasol in the Pande gas field and several mining companies in the coal mines in and around Tete. Presently the projects attracting most investment are the gas projects in Cabo Delgado province. Source: Unctad, based on estimates CPI licensed projects by sector, excluding mega-projects, Million dollars and percentage of total of the sector Table 3: CPI licensed projects When considering investments other than investments made in Mega projects; the above table shows that, according to CPI, foreign owned companies are responsible for 30% of the investments, JV s are responsible for 58% of the investments and pure Mozambican companies are responsible for 12 % of the investment projects approved by CPI. 2.4 Outlook for economy (current role and future role) In 2013 real GDP posted robust 7% growth, although lower than expected due to severe floods early in the year. The progressive increase in coal production and the implementation of large infrastructure projects, coupled with budgetary expansion, are expected to continue to drive growth, projected at 8.5% in 2014 and 8.2% in P 11/37

13 The agriculture sector, employing 70% of the population, lacks the same economic dynamism, although it is growing at above 4% Main issues related to the further development of the country The current political situation is somewhat tense in view of the presidential elections. The political issues between Renamo and Frelimo have been solved with the signing of an agreement between the parties in August 2014.The recent deterioration of public financial management and economic governance are of increasing concern. The capital-intensive nature of Mozambique s growth has as yet created limited jobs and has had a lessthan-desirable impact on poverty reduction. Mozambique remains one of the least developed countries in the world. The rise in external debt levels to fund the public investment programme, particularly from nonconcessional borrowing, increases the demand that public investments generate positive economic returns. Fiscal revenues cover little more than 65% of the annual budget, while mega-projects benefit from generous fiscal incentives. The weak human capital and the country s deficient infrastructure seriously cripple economic and social development. The year 2014 has been marked by several political milestones, notably the designation of the ruling party s candidate to succeed President Guebuza who is due to step down at the end of his term late this year. This happens few months following the municipal elections of November 2013, which registered the emergence of a third political force, MDM, which won important towns and cities, including the strategic cities of Beira, Nampula, and Quelimane, the second, third and fourth largest cities in the country respectively, as well as the small town of Gurué, thus signalling a highly disputed general elections late this year. Availability of electricity has become an issue as a result of the growing demand. Sources: AfDB and WB P 12/37

14 percentage Port Consultants Rotterdam BV 3 General economic situation in Sofala/Beira The majority of the data used in this chapter has been obtained through cooperation with the Economic Faculty in Beira. The quality of the data is sometimes questionable. In order to avoid sharp and/or contradicting conclusions data have been averaged where possible. 3.1 GDP growth Share of GDP 2009 Maputo city 19% Nampula 14% Maputo 13% Sofala 12% Niassa 3% Cabo Delgado 5% Gaza 5% Manica 5% Tete 6% Inhambane 7% Zambezia 11% Figure 6: GDP growth per sector Sofala Note: 8% of the population is living in Sofala generating 12% of GDP. Source: INE 9,0% 8,0% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% GDP Growth Sofala - Mozambique Figure 7: GDP growth Sofala Sofala GDP growth Moz GDP growth Above graph shows that GDP growth of Sofala is more or less in line with GDP growth of the country. Source: INE, Dpto de Contas Nacionais e Estudos Economicos P 13/37

15 3.2 Development of main sectors and outlook Sofala GDP Transport & communicatio n 15% Trade, accommodatio n & restaurants Figure 8: Sofala GDP 19% sectors Other services 21% Agriculture & fishing 25% Manufacturing 16% Electricity & Construction water 2% 2% The above graph shows that the main sectors contributing to GDP growth in Sofala are agriculture & fishing, transport & communication, trade & accommodation & restaurants and manufacturing. Source: INE, Dpto de Contas Nacionais e Estudos Economicos Note consultant: Construction sector seems to be underestimated. 12,0 10,0 8,0 6,0 4,0 2,0 0,0 GDP growth % Sofala Figure 9: GDP growth Sofala per sector The above graph shows that transport & communication is the fastest growing sector during Source: INE, Dpto de Contas Nacionais e Estudos Economicos P 14/37

16 3.2.1 Agricultural sector The agricultural sector employs about 70% of the population of Mozambique. The majority is subsistence farming. The Beira Agricultural Growth Corridor (BAGC) initiative is a partnership between the Government of Mozambique, the private sector and the international community, which aims to stimulate a major increase in agricultural production in the Beira corridor. In Mozambique alone, there are 10 million hectares of arable land with good soils, climate and access to water. Of this land about 1.5 million is currently being used, almost exclusively by smallholder farmers (BAGC, 2010). However, the potential is acknowledged and commercial agriculture in the corridor is slowly taking off. Potential new production according to BAGC The BAGC did a study to investigate the potential new production inside Mozambique. The results of this study are presented in this paragraph. The areas with potential are shown in Figure 10. These areas are all well linked with Beira Port. Table 4 summarizes the agricultural production potential per annum. Figure 10: Areas with agricultural potential P 15/37

17 Crop Hectares Yields Production (tons) (tons/ha) Banana 6, ,000 Citrus 6, ,000 Mango 4, ,000 Wheat, maize, soya 55, ,000 Rice 20, ,000 Sugarcane 100, ,000,000 Total 191,500 12,085,000 Table 4: Agricultural potential per annum Growth of wheat, maize, soya and rice production is unlikely to be demand constrained. In the shortterm, there are good opportunities in domestic and regional markets (substituting for imports, e.g., Mozambique currently imports 350,000 to 400,000 thousand tons of wheat and a similar volume of rice annually) and in the longer term, Mozambique could supply regional markets. (BAGC, 2010) The effect for Beira Port is that wheat and rice imports will be less. Sugar is a commodity product, with the potential to convert into ethanol for fuel, for which demand is unlikely to limit Mozambique production. Further improvements on best practices are expected to allow in the short to mid-term an average ethanol productivity of 9,000 litres per hectare (Goldemberg, 2008). This means a maximum production of 900,000 m3 per year for the Beira corridor. Principle Energy ( Bosch Projects form SAR doing management, Craton Partners Equity Partners from California) is utilizing 14,000 ha and invests $400 million towards ethanol production from sugar cane. Located in Dombe (Manica province), the biofuel is expected to flow out of Mozambique through Beira port. (BAGC, 2010) Another possibility is to make sugar out of the cane. Sugar cane must be crushed to extract the juice. The juice is collected, filtered and then boiled to drive off the excess water. The remaining liquid sets into a sugar. Generally, from 10 tons of sugar cane, 1 ton of sugar is made (Practical Action). Thus, a maximum of 1.1 million ton sugar could be produced. Forestry/Logging Timber products, namely non-coniferous sawn wood and logs are currently Mozambique s largest containerised export product through the port of Beira. Industrial plantations are mainly located in Manica Province, in the east of the country, with the closest port being Beira. The production and national exports of sawn wood and logs is currently at a third and fifth of pre-crisis levels. It is expected that timber production and exports will recover in the long run to precrisis. In Beira port some 20% (Aurecon 2014) of the export containers are filled with sawn wood and logs. Sugar plantations The sugar production of Mozambique has grown steadily since 2000 as a result of the redevelopment of the colonial sugar plantations. In 2014 the production reached a level of 425,000 tons as compared to 360,000 tons the previous year. Sofala province has plantations in Maromeu (Tongaat-Hulett and Illovo Sugar from South Africa) and Mafambisse (FUEL Group, ENL/Savannah, Compagnie d Investissement et de Développement Ltée and Kalua Properties Ltd. and Stam Investment Ltd, a Mauritian consortium) while there are plans to redevelop the plantation in Buzi. P 16/37

18 Figure 11: Sugarcane production Mozambique Source: USDA foreign agricultural service 2013 Fishing and fish farming Traditionally Beira has had a fishing fleet both commercial and artisanal. Two fish processing companies exist in Beira mainly concentrating on frozen fish. To the north of Beira a 132 ha shrimp farm (Sol-Mar) has been established. With the planned investment of 120 mln in the rehabilitation of the fishing port of Beira this sector is likely to get a boost. Cattle farming Over the last 10 years several initiatives have been developed in the Beira corridor. Whereas in the past meat used to be imported from Zimbabwe nowadays the majority of the meat is produced locally. The sector is continuing to invest and expand with eventually the potential and ambition to export beef. A leading company is Mozbife. Downstream activities are an industrial abattoir based in Chimoio. Rice production The government of Mozambique has a policy to become self-sustainable in rice production. The government is cooperating with China on this subject. The Chinese have in the meantime started several initiatives to produce rice and to improve the production of rice throughout Mozambique. In the province of Zambezia a rice processing factory has been built in 2013 with a capacity of 50,000 tons per year Limestone and cement production The province of Sofala has an abundance of lime stone resources which have been recognized by investors from several countries. Investments are taking place and are planned to increase the cement production significantly. Total production capacity will be in excess of 2 mln tons per annum potentially leading to exports and replacement of imports. Cimentos de Mozambique in Dondo is increasing capacity P 17/37

19 from 220K tons to 720K tons. Cimentos da Beira (just north of oil termnal in Beira) will produce 550K tons, investment by Industrial Development Corporation of South Africa. Star cement from UAE 450K tons in Dondo. And China Mozambique cement and mining are considering a 1,000K tons plant in Inhaminga. 3.3 Income per capita Income per capita USD Sofala Mozambique Figure 12: Income per capita Sofala The above graph shows that the Income per capita in Sofala is higher than the average of the country. Source: INE, Dpto de Contas Nacionais e Estudos Economicos Employment per sector Beira 2011 Agriculture & fishing 13% Transport & communicatio n 13% Other services 21% Trade, accommodatio n & restaurants 35% Manufacturing 10% Electricity & water 2% Construction 6% Figure 13: Employment per sector Beira The above graph shows that in Beira city the main sectors of employment are trade & accommodation & restaurants, service industry and transport & communication. Source: INE, Dpto de Contas Nacionais e Estudos Economicos P 18/37

20 3.4 Investments in Beira Projects approved mln USD Sofala, Loans; 528 FDI; 473 National Investments; 214 Figure 14: Projects approved in Sofala by CPI The above graph shows that during in Sofala, projects with a total value of million dollars was approved of which 43% was financed with loans, 18% was financed by National Investors and 39% was FDI. Source: CPI Approved projects mln USD per sector Sofala, Agriculture & fishing; 603 Manufacturing; 319 Tourism and Hotels; 66 Transport and Communications; 87 Services; 106 7% 9% 2% 5% 50% 27% Figure 15: Approved projects per sector in Sofala Above graphs shows how the investments in the province of Sofala were divided over the sectors. Source: CPI Note: projects approved by CPI are not necessarily implemented. P 19/37

21 4 Competitive position of Beira Port 4.1 Natural Hinterland Figure 16: Natural hinterland Beira The above map shows the countries in yellow which are the natural hinterland of Beira port. 4.2 Competing Ports Destination/Port 1 st Port 2 nd Port 3 rd Port 4 th Port Northern Moz Pemba Nacala Central Moz Beira Nacala South Moz Maputo Durban North Zim Beira Durban South Zim Durban Maputo Beira North Malawi Dar es Salaam Beira South Malawi Durban Beira North Zambia Dar es Salaam Durban Beira South Zambia Durban Walvisbay South DRC Durban Walvisbay Beira Lobito North Botswana Durban Walvisbay Maputo Beira Table 5: Competing Ports The primary market for Beira is Central Mozambique and Northern Zimbabwe, followed by Malawi. Investments are taking place in Nacala port. Firstly for the handling of coal exports but a number of other investments are considered as well which may/will compete with Beira. P 20/37

22 Draft limitation Beira Port The draft limitation of the Port of Beira will in the near future (maintenance dredging) and in the future remain a serious issue. The port is not able to handle loaded panamax size vessels which are becoming the standard in African ports. In the long run this will affect the position of Beira and probably reduce the role of the port. Nacala, Maputo, Durban and Walvisbay are all ready to handle panamax size vessels creating economies of scale. In the long run this may reduce the role of the port of Beira to becoming a feeder port rather than a gateway port. Figure 17: Competing ports P 21/37

23 4.3 Competing Corridor developments Beira will see more competition in Malawi, Northern Zimbabwe, South DRC and Central Mozambique because of the developments in Nacala. By the end of 2014 the new Vale/CFM railway line from Nacala to Tete will be opened. Discussions are ongoing about linking the line to the Zambian network. Beira will also see more competition in Southern Zimbabwe, Northern Zambia and Southern DRC from Walvisbay because of the development of various corridor initiatives by Walvisbay and the expansion of the port with a new container terminal of TEU allowing 5000 TEU vessels (phase 1) and later 8000 TEU vessels (phase 2). The new container terminal is supposed to be operational in 2017, finance is provided by AfDB. In the next two years the Benguela railway line from Lobito, Angola to Northern Zambia and South DRC will become operation. It is expected that the line will enable Lobito to compete with Beira for cargo from Zambia and DRC. A number of railway lines and new ports are being studied in order to support the coal exports from Tete. Eventually these will compete with Beira. Figure 18: Competing corridors P 22/37

24 5 Development port of Beira Cornelder de Mozambique has reported recently that they expect an increase in cargo throughput over 2014 of some 15% as a result of an investment in additional Ship to Shore cranes. 5.1 Containers Recent History Container traffic x 1000 TEU Figure 19: Container traffic The jump in throughput from 2010 to 2011 is due to the effect of the dredged entrance channel to the port which increased the capacity significantly. Over the last 10 years the cargo origin/destination has changed. Where in the past the majority of the container cargo was destined for Zimbabwe this has now reduced significantly, relatively. Of the container cargo, 51%, is now related to Central Mozambique, followed by Malawi 20%, Zimbabwe 16% and Zambia 11%. The main commodities exported are timber from Mozambique and Zambia(18%), tobacco from Zimbabwe, Malawi and Mozambique (24%), Chrome ore from Zimbabwe (4%), Cotton from Zambia, Malawi and Zimbabwe (3%), copper from Zambia (3%) and tea from Malawi (2%). Main products imported in containers are foodstuffs (25%), fertilizer (16%), building material (95), machinery (7%), clothing (6%) and household goods (6%). Source: Cornelder de Mozambique Forecast Forecast for container throughput are usually related to the expected growth of the GDP and an increase in containerization. According to the Aurecom Port masterplan the expected growth in container throughput over the next 30 years is in a conservative scenario is 5,8%, in the base scenario 6,25% and in the optimistic scenario 7%. P 23/37

25 Beira Container scenario's 1000TEU Conservative Base Optimistic Figure 20: Container scenario s Source: Aurecom Port masterplan Other commodities 20 Beira cargo forecast Mtpa General Cargo Bulk Liquid Bulk Minerals Figure 21: Forecast other scenario s Source: Aurecom Port masterplan 2014 The forecasted growth for General Cargo is 5,6% per year, for bulk liquids 5,4% per year and for bulk minerals 8% over the next 30 years. General cargo main import commodities: grain, clinker and fertilizer. General cargo main export commodity: sugar and granite. Bulk minerals main export commodity: coal. P 24/37

26 5.2.1 Worldwide coal demand and supply The views on the development of worldwide coal demand and supply are not aligned. Two dominant views can be found; one indicating that coal will become the dominant fuel and the second view indicating that coal demand will reach its peak in Coal to become dominant fuel Global coal consumption is expected to rise by 25 percent by the end of the decade to 4,500 million tonnes of oil equivalent, overtaking oil at 4,400 million tonnes, according to Woodmac, the leading energy consultant. Global coal production is expected grow from the approximate 4 billion tons currently mined annually to 7 billion tons in Main demand is from China and India who will propel coal past oil by end of decade. China is driving twothirds of coal growth this decade. Half of China's power generation capacity to be built between 2012 and 2020 will be coal-fired, said Woodmac. There will be muted impact from carbon policies aimed at curbing coal use. China has no alternative to coal, with its domestic gas output limited and liquefied natural gas (LNG) imports more costly than coal. Coal prices are low," about one-third of the price of LNG in Asia and about half of the gas price in Europe. Even with environmental concerns and global pressures, China and India just do not have the same latitude that more developed economies have to focus on carbon emissions at the risk of reducing economic development from higher cost alternative fuels and technologies. China could have cleaner air and use more coal to fuel its growth if current emission control technologies were deployed and used more effectively. Renewables cannot provide base load power. This leaves coal as the primary energy source. Coal s share of total world energy consumption is projected to increase to 28 percent in 2030, and in the electric power sector its share is projected to rise from 43 percent in 2004 to 45 percent in Of the coal produced worldwide, 65 percent is shipped to electricity producers, 31 percent to industrial consumers, and most of the remaining 4 percent to coal consumers in the residential and commercial sectors. P 25/37

27 Major Inter-Regional Coal Trade Flow, (Mt) Figure 22: Map world coal trade Source: Source: Source: Coal Investors Warned Chinese Demand Will Peak in 2016 and May Cripple the Industry Chinese demand for thermal coal could peak as soon as 2016, having a potentially crippling impact on the global coal industry. Coal companies are already facing challenging times, as the industry looks to cheaper and cleaner alternatives. Future demand for coal may slacken, further dampening prices. All of these factors led to the Carbon Tracker Initiative concluding in a new report that "coal is a sinking ship". The report is issued under the auspices of raising awareness to the financial risks faced by investors in the coal industry. The sector needs $112bn ( 68.5bn, 87.3bn) of investment in coal mine expansion and development to sustain itself, CTI said, and "the high costs new mines are not economic at today's prices and are unlikely to generate returns for investors in the future". The authors drew on research from the Institute of Economics and Financial Analysis (IEEFA), which found China's demand for coal will peak in 2016 and steadily decline thereafter. The country may become a net exporter but it's unlikely there will be any other country in a position to take up the lag in demand that would be left by China. "China currently represents around half of the global thermal coal market and will be critical to the future levels of consumption and seaborne market structure. Alongside the IEEFA low-demand model, a number of mainstream coal analysts from investment research houses [Deutsche Bank, Bernstein, Morningstar] P 26/37

28 expect Chinese coal demand peaking by 2016 or sooner," wrote the authors. Coal exporters are increasingly pinning their hopes on India, especially given the sheer levels of investment required in their industry and infrastructure. But CTI warns the current price of electricity cannot support continued expensive imports of coal and that India's "weak financial system cannot continue issuing non-performing loans to help grow a loss-making power and distribution sector". The environmental upside is that Chinese carbon dioxide emissions could peak before 2020, since they have historically tracked coal consumption so closely. "The world's coal industry is playing music chairs with demand, every time the music stops another piece of the market is being taken away," said James Leaton, research director at CTI. At the crux of the think tank's research is the finding that demand for the seaborne coal market could fall drastically over the next 20 years, to 850 million tonnes per year, which would require a breakeven price of $75 per tonne. Mines with costs higher than this will struggle to attract investors, or at least pay them the desired rate of return. There are numerous large coal facilities coming online in the future that would struggle to make the figures work in such a low-demand scenario, CTI said, including the Galilee Basin in Australia and the Powder River Basin in the US. Perhaps anticipating the shift, the likes of Rio Tinto and BHP Billiton have been shedding assets in Australia, Mozambique and South Africa, sometimes spinning them off into newcos, in an effort to manage the potential future cost. "Any investor should already be questioning whether high-cost thermal production can turn a profit," the report reads. "This is an opportunity for active shareholders to ensure diversified miners are limiting their exposure to losses in the thermal coal business. The report has been released to coincide with the Global Climate March campaign, which kicked off in cities around the world on Saturday 20 September. The timing is also important in the light of the revelation from 19 September that the world's population is set to grow quickly for the rest of the century, despite the 20-year consensus that it would peak in and around 2050 at about nine billion people. "The significance of the new work is that it provides greater certainty. Specifically, it is highly likely that, given current policies, the world population will be between 40-75% larger than today in the lifetime of many of today's children and will still be growing at that point," said Simon Ross of the Population Matters think tank. The implications for the environment are stark: scientists were already wondering how the planet would support nine billion people; the fact that the world's population may be set to hit 11 billion by the end of the century presents a new and terrifying quandary. Source: Yahoo News P 27/37

29 5.2.2 Position of Mozambique coal Mozambique produces high quality low sulphur coal. Due to low world market prices and high logistic cost in Mozambique all coal exporters make losses. The price of Australian coking coal, regarded as the best in the world, was almost 350 US dollars a ton in 2011, but recently fell to below 100 US dollars a ton. As result of these low market prices Rio Tinto has sold its mines to International Coal Ventures Pvt, from India, accepting a 3 billion dollar write off. Jindal is making a loss and Vale is complaining about prices and cost but pushing ahead and recently announced new investments in Moatize to increase the annual output of the mine to 17 mln tons of metallurgical coal and 5 mln tons of thermal coal. At the same time new coal concessions are being issued to other mining companies proving there still seems to be serious interest. Mozambique is lacking a domestic market for coal making it dependent on international prices whereas South Africa, for instance, has a serious domestic demand from its power sector. The minister of transport is indicating in a recent interview that he does not expect the investors to withdraw from the coal sector or sell their concession but rather that the planning of the investments by the coal sector will be revisited. Additional infrastructure projects The infrastructure project for new rail and port in Macuse is probably not feasible with current low coal prices. The same applies for the ENRC rail line to Nacala. Mozambican government is looking for ways to ease the burden for the mining companies. Figure 23: Infrastructure projects P 28/37

30 5.2.3 Position of Beira for coal exports The forecasted exports of the various mines is in the order of 100 mln tons per year. However with the depressed coal rates as they are these exports are not feasible from an economic point of view and hence it is not to be expected that in the short term serious investments in mines and associated infrastructure will continue. In practical terms this leaves the existing routes the only routes available. The Sena line with a capacity of 6 Mtpa via Beira, and by the end of 2014 the Nacala railway line with a capacity of 18 Mtpa. There are plans to increase the capacity of the Sena railway line to 20mln tons, according to articles in the media these investments are currently taking place. New Coal Terminal Beira (NCTB) NCTB would increase space at the port for handling coal at Beira Port, Mozambique. Essar Ports is in the process of seeking approval for plans to invest up to US$25 million in a joint venture to develop a coal terminal at Beira Port, Mozambique. The New Coal Terminal Beira project (NCTB) would be a joint effort shared between Essar Ports as well as the Port and Rail Authority of Mozambique. NCTB would involve the construction of a new facility with space to handle 10 million tonnes of coal per year, with the possibility of further expansion dependant on the availability of cargo. Essar now seeks the approval of its shareholders to begin investing in the project, with a corporate guarantee of $10 million needed in advance, on behalf of the joint venture. Alternative for rail In order to overcome the shortage of infrastructure and to avoid the massive investments required to build additional infrastructure Jindal is looking at the possibility to export coal slurry by pipeline to Beira from Tete. Essar has presented similar ideas to export coal from Zimbabwe Opportunity and threats for the port Opportunities: Growing economy and forecasted growth of throughput Additional coal exports from Tete area Additional coal exports through coal slurry pipeline form Tete and Zimbabwe. Pig Iron exports from Tete province (1Mtpa) is in definitive feasibility stage. Woodchip exports from Mozambique and Zimbabwe. Agriculture exports like sugar, cotton, tobacco, tea. Investment in fishing sector. Threats: Development of Nacala Port serving Tete and Malawi area, potentially Zambia and DRC as well. Development of Benguela railway line and Walvisbay corridors. Draft limitation Beira port Additional investment in infrastructure and superstructure in the port is necessary to maintain competitive position P 29/37

31 No competition in the port Some political unrest in Mozambique Figure 24: Infrastructure projects P 30/37

32 5.3 Recent and planned investments in Port of Beira In recent years substantial investments have been made in the Port of Beira and more investments are planned Recent investments in Port of Beira Investment Capacity Estimate value $ Year Dredging Entrance Channel 8 meter draft 55 mln 2009 Dredger, Tug, Pilot boat 2500 cbm 53 mln 2013 Gantry cranes container terminal Storage capacity container terminal 2 x STS, 23 rows wide, twin lift TEU became TEU 16 mln mln 2013 Coal terminal, quay mtpa 60 mln 2012 Beira Grain Terminal ton 12 mln 2010 Sena line rehabilitation 5-6 mtpa 45 mln 2013 Petro Beira (fuel storage) 84K cbm became 120K cbm mln 2010 Beira Terminal (fuel storage) 18K cbm 2 5 mln 2014 Fertilizer Terminal tons 35 mln 2014/15 Jindal coal yard tons mln 2013 Manga-Mungassa Special Economic Zone 217 ha 260 mln 2014 Various trucking companies trucks mln Various warehousing companies Total investment Table 6: Recent investments in Beira Note: Italic fond = consultant estimate m mln mln P 31/37

33 5.3.2 Planned investments in the Port of Beira Investment Handling equipment container terminal Mineral/Dry bulk terminal Car terminal Sugar terminal Quay 11 A, B, C Capacity m, 13,5m draft Estimate value $ mln mln 5 10 mln mln New Coal terminal mtpa 600 mln Beira Grain Terminal, phase ton 10 mln Sena line upgrade 18 mtpa 224 mln Second oil terminal Rehab Beira Machipanda rail Year mln 2015/ mln mln Fertilizer Terminal, phase tons 35 mln Manga-Mungassa Special Economic Zone, phase ha 240 mln Rehab fishing port tons 120 mln Rehab Beira Machipanda road Various warehousing companies Total Investment Table 7: Planned investments Beira Note: Italic fond = consultant estimate 300 km 400 mln m mln mln P 32/37

34 6 Outlook for Beira economy (current role and future role) Beira gateway port Over the years Beira has maintained its role as gateway port to the surrounding countries. The concessioning of the Machipanda railway line and the Sena line to the Indian consortium Ricon has had a negative effect on the development and the capacity of the Beira corridor since very little investment and very little maintenance was carried out. As an effect the Sena line needed serious investment and rehabilitation in order to make it fit for the transportation of coal from Tete. The Machipanda line now is in the process of being rehabilitated and has very little capacity. The effect has been a significant increase in road transportation. Zimbabwe and change in trading pattern The decline of the economy and stability in Zimbabwe has led to a change in trading pattern. Where in the past Zimbabwe was the a base to source all sorts of materials and services from this has now changed to other countries, including Mozambique. Stocks are no longer kept in Zimbabwe but in other countries, including Mozambique. And the terms of sale have changed as well; payment on delivery. Which means in practise that trade is taking place in Beira. Another example is the fuel trade. The fuel pipeline to Zimbabwe is not functioning properly leading to road transport from Beira but also stock keeping in Beira. At present several international oil companies and oil traders are in the process of (re- ) investing in Zimbabwe in order to get a piece of the growing cake. In their plans Beira seems to play a critical role. China and India determine demand The development of the world economy over the last 10 years with China as the economy with the greatest demand for raw materials and energy followed by India has had its effect on Mozambique and the surrounding countries. Growing demand for raw materials and energy has led to investments in African economies and subsequent economic growth. Effect of investment in entrance channel to the port The investment in the entrance channel to the port has led to enforcement of the position of Beira as a gateway port. An immediate effect has been the increase in throughput in the port itself but secondary effects are very apparent as well, like investments in additional warehousing facilities by leading commodity warehousing companies, additional investments in trucks and transport facilities, the development of a SEZ by the Chinese. In order to maintain the growth pattern investments are necessary in order to increase the handling capacity of the terminals in the port otherwise this will become the bottleneck. Future demand Looking at the future the demand pattern is not likely to change. Most economic outlooks forecast continues growth in India and China where India actually has to make up for some years of slow growth. With the new prime minister Modi as the new head of state more effective economic policies may be expected potentially leading to additional demand. Looking at GNI development in Mozambique and surrounding countries a healthy increase is foreseen which will lead to an increase in consumption and imports. Changing structure of the economy Looking at the structure of the Mozambican economy the structure is likely to change and in a way needs to change for political reasons such as employment and sharing of benefits/growth. The P 33/37

35 traditional pattern of raw materials being exported will eventually change to exports of half products. The pattern of imports of consumption articles and machinery will eventually at least partly change to own production because the size of the market will justify investments in these sort of production facilities. Although government policies will (have to) play a role in order to support this change. Some examples of this change are the local production of fruit juice (Refriango, Angola and Sumol & Campal, Portugal), canning of pineapple and pineapple juice (First National Choice, SAR). Other examples are investments in cement production, production of sawn timber and furniture rather than exports of logs. Bottling and packing of food products rather than the importation of packed products. Mixing and production of animal fodder rather than the importation. Exports of filleted fish rather than entire fish. The planned establishment of a cigarette factory by Savanna Tobacco and a tobacco processing plant by Mozambican Leaf Tobacco should be seen in the same light. Other developing countries show similar patterns like Nigeria (Dangote Group) and Tanzania (Bakresha Group) who now have leading local companies taking care of the majority of production and distribution of basic food stuffs. Other structural changes to be expected are intensified inter African trade. Supported by initiatives to ease transport and trade between countries (SADC) the trade is expected to intensify. Typical products to be traded between African countries are sugar, maize, cement, construction steel, fertilizer, hop and barley for beer, petroleum products, timber and wheat. Principle drivers of demand Looking at the future of Mozambique economy the driving factors are mineral resources, agriculture and gateway ports. The known mineral resources in the country seem to increase by the week. Almost every week a new discovery is published in the media. At present the main mineral areas are around Tete (coal and iron ore) and in the province of Cabo Delgado (graphite and natural gas). Key to exploration of most of these minerals (bulky and relatively low value) are the cost of transportation and available infrastructure. Potential position of Beira Looking at the position of Beira; the Tete area is still some 300 km closer to Beira than it is to Nacala. Although Nacala port has the advantage of almost unlimited draft for vessels and will soon have a new railway line, the conditions in the present port still need to upgraded significantly. Beira is in a strong position to benefit from growth and changes in Zimbabwe which are almost inevitable to take place. With regard to agriculture in Mozambique the logging/forestry business seems strong, meat production is being invested in, sugar plantations are expanded. In the surrounding countries investments are taking place and output is increasing. Considering the coal sector in Mozambique; world market prices are depressed at present but demand for coal is expected to continue to increase. Prospecting for oil and gas off-shore is moving south from the Pemba area and may generate opportunities for Beira in the time to come. What is required to capture the opportunities Whether Beira will benefit from these opportunities will largely be depended on the availability of competitively priced infrastructure. Beira is considered as one of the working corridors in Southern Africa but the corridor is also considered to be rather full, costly and sometimes congested. In the short term serious investments are necessary to increase the capacity. According to the media a number of these investments are lined up, like: P 34/37

36 a 400 mln USD investment in the Machipanda road (Nat. Government and China s Anhui Foreign Economic Construction Corp (AFECC) ), a new fertilizer terminal in the port USD 35 mln(cornelder/cfm), Investments in Quay 11, estimate value mln (Cornelder/CFM), expansion of the capacity of the Sena line, USD 224 mln (CFM), US$260 million of a total US$500 million to build infrastructure in the Manga-Mungassa Special Economic Zone (Chinese company Dingsheng International Investments), Investment in the rehabilitation of the fishing port of Beira, USD 120 mln, soft loan from China, Rehabilitation/rebuilt of Machipanda railway line is in planning process (CFM). But more investment would be required to capture the economic opportunities, like: Reliable power supply and additional power supply, Additional handling capacity in the port (oil, containers, general cargo, coal), Alleviation of infrastructure bottlenecks in and around the port, like a designated entrance road, Upgrading of roads in the city, Coastal protection for the city, Drainage of the city to be provided/improved, large parts of the industrial zone between the entrance to the port and Manga are flooding during rainy season, In the agricultural sector; road connections for input supply and transport of products, In the agricultural sector; reservoirs/dams which can provide irrigation water, Availability and upgrading of general facilities like healthcare, housing, public transport, etc., Availability of skilled and qualified labour, Access to finance, Availability of suitable land for industrial, logistic and added value activities. On an institutional level a number of improvements would be necessary, like: Improvement of cooperation between City and Port, Improvement of cooperation between City and government in Maputo, The tax income of the city of Beira would need to be improved. Shortage of land The shortage of suitable land in Beira is a recurring subject for all housing, port and industrial projects. There is plenty of land available in and around Beira but it is low laying, vulnerable to inundation and not connected to the existing utility and road networks. Both the PMP and the BMP indicate and calculate a requirement for expansion. The Aurecon PMP largely concentrates on the requirements for expansion directly related to loading and unloading of vessels and does not specify requirements for logistics and added value areas. The PMP does however advise to move existing activities within the port area which are not port related to be moved outside the designated port area leading to additional demand for space in the city. The BMP provides a proper framework for the future development of city and addresses both long term requirement for land for residential areas and industrial area. P 35/37

37 Housing Growth % 2,25 4,25 Scenario low high Population Hectares Industrial area Growth % 4 8 Scenario low high Hectares Port Area Growth % 4 8 Scenario low high Hectares net Hectares gross Table 8: Requirement for land From an economic perspective it is relevant to develop these areas in line with demand in order to invest efficiently. It also makes sense to approach these expansions in an integrated manner whereby all basic utilities are made available, sewage is connected, roads and railroad are connected all in line with an overall view about the future development of the city and port. An integrated approach will save cost and time and safeguard the interest of all involved. P 36/37

38 Annex 1, summary of telephone interviews About Beira Confirm gateway position Beira for earlier described hinterland. Beira port is working relatively well and Cornelder is relatively well responding. In season ( Aug Jan, in particular Sep, Oct and Nov) port gets congested and needs to be avoided. Shortage of empty containers. No silos for cement import. Relatively small call size of container vessels limits import/export possibilities. Some investments in the port have been executed and managed poorly (warehouse in the port, enforcement of pavement) leading to losses. Capital Dredging in 2010 has led to investment in warehouses and depots. Beira should not turn into a coal port because it takes capacity away for handling of other general cargoes. Beira should be able to increase containers to ,000 Teu, 5 Mtpa coal and 5 8 Mtpa general cargo. But additional investments necessary to increase capacity and productivity. Investments to increase capacity are late, more growth could have been captured. Some companies already have land positions in foreseen new industrial zone, waiting for access road to open up the area and trigger investment. Mozambique/Beira is closed market to certain extend, small number of businessmen and politicians decide who can enter. If market would be free more investments could be attracted. In general investors are positive about Mozambique as compared to other African countries. About Nacala Nacala port is still behind in terms of organisation and facilities. New Nacala port (Nacala Velha) is only for coal export and little benefit for other cargoes. New Nacala railline may create opportunities but with present low coal prices there will be a necessity to export as much coal as possible in order to keep the cost per ton low/competitive leaving little capacity for other cargoes. Rail rate for New Nacala line not yet known. Depending on the rail cost coal may shift to Nacala Port which has much better draft. At present coal business case is a disaster. Large infrastructure projects move slow. Government not decisive. P 37/37