US embassy cable - 04MAPUTO269

UNCLAS SECTION 01 OF 02 MAPUTO 000269 
 
SIPDIS 
DEPT PASS TO USTR 
E.O. 12958: N/A 
TAGS: ETRD, MZ, AGOA 
SUBJECT: MOZAMBIQUE: INPUT FOR PRESIDENT'S REPORT ON AGOA 
 
REF: A. STATE 023970 
 
B. MAPUTO 01697 
C. MAPUTO 01452 
D. MAPUTO 01406 
 
1. AGOA Trade and Investment: Mozambique has had limited 
success in expanding trade and investment under AGOA, though 
there remains strong potential to increase exports in several 
key sectors. Two apparel companies, Mauritian-owned BELITA 
and Pakistani-owned OMAR, exported apparel products to the 
United States under AGOA during 2003, though OMAR recently 
closed its operations (ref B). Apparel exports consisted 
principally of knitted t-shirts under the FUBU and Cherokee 
(Target) labels. Despite the closure of OMAR, which resulted 
in the loss of over 350 jobs, apparel exports and jobs are 
likely to increase significantly in the next few years due to 
a recent investment by the Aga Kahn Foundation. This 
investment includes the rehabilitation of a 12,000 square 
meter factory located outside of the capital city of Maputo, 
and is expected to result in the creation of 2,000 jobs. The 
Foundation is the process of sourcing equipment for the 
plant. Several of Mozambique's six textile mills could 
potentially be revitalized. As none of the mills is currently 
operating at any significant level of operation, all textiles 
for use in apparel assembly factories are currently imported. 
A key concern for existing and potential investors in the 
apparel sector is the scheduled expiration of the third 
country textile provisions in September 2004. Post has been 
working closely with several fish processing facilities to 
promote the export of non-industrially caught prawns to the 
United States. The first shipment of prawns was exported to 
the United States in June and increased exports are expected. 
 
2. Market-Based Economy/Reduction of Trade Barriers: 
Mozambique continues to be one of the most dynamic and 
fastest-growing economies in sub-Saharan Africa, albeit from 
a low base. The Government of Mozambique (GRM) has encouraged 
foreign direct investment (FDI). Mozambique has privatized 
over 1200 mostly smaller companies and 37 large enterprises 
since the privatization program began 10 years ago. Foreign 
investors have participated in Mozambique's privatization 
program without impediment. Only 11 large state-owned or 
operated companies remain, including the national airline, 
telephone, electricity, insurance, oil and gas exploration, 
port and rail, airports, water supply, and fuel distribution 
companies. In July, Mozambique was assigned an international 
credit rating of B/B by Fitch Ratings, reflecting 
Mozambique's positive track record on economic reforms, 
political stability, strong economic growth, openness to FDI, 
and expanding exports. There were no claims of expropriation 
by U.S. firms in 2003. Mozambique remains cooperative on 
intellectual property rights protection. Mozambique is a 
signatory to the Southern African Development Community 
(SADC) Trade Protocol, which calls for the elimination of 
tariff and non-tariff barriers between the signatory states 
over a 12-year period. Launched in September 2000, tariff 
reductions began in July 2001. 
 
3. Poverty Reduction: Mozambique faces enormous development 
challenges. The country also lacks infrastructure, power, and 
clean water for most of its citizens. The Government has 
placed its Plan for the Reduction of Absolute Poverty (PARPA) 
at the head of its policy agenda. PARPA emphasizes six areas 
as the key reducers of absolute poverty: education; health; 
basic infrastructure; agriculture and rural development; good 
governance; and macroeconomic and financial management. 
Indicative of the huge challenges Mozambique will face for 
decades to come is the modest PARPA goal to reduce from 70 
percent to 50 percent the level of absolute poverty by 2010. 
The donor community, led by the US, funds approximately 60 
percent of the national budget, though the HIPC and Enhanced 
HIPC (Heavily Indebted Poor Countries) debt relief programs 
have permitted increased budgetary support to alleviate 
poverty. 
 
4. Democratic Consolidation/Rule of Law/Anti-Corruption: 
Mozambique has made significant progress in the consolidation 
of democracy since the signing of the 1992 Peace Accords that 
ended sixteen years of civil war. In late 2004, Mozambique 
will hold it's third multi-party presidential elections since 
independence in 1975. The current constitutionally-elected 
president, Joaquim Chissano, will step down after having 
served two terms. Chissano and the leadership of FRELIMO 
dominate policy-making and implementation. On November 19, 
2003, Mozambique held municipal elections which were 
considered generally free and fair. However, many 
institutions, such as the judiciary and the police, remain 
weak. Corruption remains a problem in both the public and 
private sectors. In recognition of this, the GRM's Attorney 
General established an Anti-Corruption Unit, which has 
received funding from USAID and the Department. In addition, 
in October, the National Assembly passed the Anti-Corruption 
Law, which aims to curb corruption in government offices, the 
police force, hospitals and the schools. The Department has 
also funded Mozambique's Police Sciences Academy in an effort 
to improve the performance and professionalism of the police 
force. Mozambique is an increasingly important partner on 
regional security issues and in the war against terrorism and 
organized crime. 
 
5. Human Rights/Workers Rights/Labor: Mozambique does not 
engage in gross violations of internationally recognized 
human rights, though there remains room for improvement and 
abuses do exist. The Constitution provides that all workers 
are free to join or refrain from joining a trade union, and 
workers enjoy these rights in practice. Labor unions, created 
during the socialist years, remain weak and lack resources. 
Total membership among Mozambique's thirteen unions is less 
than 200,000, concentrated in Maputo and a few other urban 
areas, and much of the labor force is engaged in small-scale 
agriculture. There were a number of work actions in 2003. 
Child labor remains a problem. One positive development 
during 2003 was the GRM's ratification of ILO Convention 182 
on the Worst Forms of Child Labor. 
 
6. Trade Capacity-Building Efforts/AGOA Outreach: USAID is 
currently implementing a variety of trade capacity-building 
efforts in Mozambique under its Strategic Objective of 
Enabling Environment for Growth. These initiatives focus on 
overcoming constraints to investment and trade through 
technical assistance and institutional support. In 2003, the 
Embassy began a series of digital video conferences (DVC) on 
expanding exports under AGOA in key sectors. The first DVC 
focused on the apparel/textile industry and included the 
participation of Mozambican government officials and apparel 
sector representatives and US business associations. A second 
DVC is planned for April on the handicrafts sector. The 
Embassy also continues to engage Ministry of Industry and 
Trade Officials on addressing constraints to trade and 
investment in key sectors. 
LA LIME