US embassy cable - 04MAPUTO1213

UNCLAS SECTION 01 OF 02 MAPUTO 001213 
 
SIPDIS 
STATE FOR AF/S, AF/EPS 
E.O. 12958: N/A 
TAGS: ETRD, PHUM, PREL, MZ, AGOA 
SUBJECT: MOZAMBIQUE REMAINS ELIGIBLE FOR AGOA BENEFITS 
 
REF: A. STATE 168472 
 
B. MAPUTO 269 
C. 03 MAPUTO 1452 
 
Summary 
-------- 
1. Mozambique meets the requirements for benefits under the 
African Growth and Opportunity Act (AGOA). The Government of 
the Republic of Mozambique (GRM) continues to make progress 
in establishing a market-based economy, eliminating barriers 
to US trade and investment, reducing poverty, promoting 
democratic consolidation, and protecting workers' rights. 
This positive trend should continue, especially as Mozambique 
begins to benefit economically from higher levels of 
international trade and investment. End Summary. 
 
Market-Based Economy 
-------------------- 
2. Mozambique continues to be one of the most dynamic and 
fastest-growing economies in sub-Saharan Africa, albeit from 
a very low base. GDP growth was 7 percent in 2003 and is 
expected to continue between 7-10 percent over the next 
several years. The GRM has been encouraging foreign direct 
investment (FDI). During 2003, the GRM's Investment 
Promotion Center, CPI, approved 101 projects involving 
foreign investment, valued at approximately $112 million. 
Several new, large projects which are not included in the 
2003 figures are expected to begin in 2005/2006. Mozambique 
has privatized over 1200 small companies and 37 large 
enterprises since the privatization program began 10 years 
ago. Foreign investors have participated in Mozambique's 
privatization program without impediment. 
 
3. 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. Concession 
agreements have been signed with private investors for 
various aspects of the management and rehabilitation of the 
ports of Beira, Maputo and Quelimane. In August, 
negotiations were finalized on the Nacala Corridor 
Development Project for the rehabilitation and modernization 
of the railroad and port system on a key transport route 
between Malawi, Zambia and Mozambique. The project includes 
substantial US investment and is expected to include 
financing from the Overseas Private Investment Corporation 
(OPIC). Mozambique opened its cellular telephone industry to 
competition in late 2003 with the granting of a licensing 
agreement to Vodacom. In 2004, Mozambique retained its 
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. 
 
Elimination of Barriers to US Trade/Investment 
--------------------------------------------- - 
4. Although quite small, US-Mozambican trade is expanding, 
with the vast majority of Mozambique's exports to the US 
entering under either AGOA or GSP. South Africa and Portugal 
are the leading foreign investors. Only 6 of the largest 100 
companies in Mozambique are US-owned or related to the U.S.: 
Coca-Cola, Mobil, Seaboard, Avis, Colgate-Palmolive and KPMG. 
Mozambique remains cooperative on intellectual property 
rights protection. Mozambique does not generally employ 
non-tariff barriers to trade and is an active member in SADC, 
as well as the British Commonwealth. 
 
Poverty Reduction 
----------------- 
5. Illiteracy and infant mortality rates in Mozambique are 
among the highest in Africa. Life expectancy is 46 years 
and, as a result of AIDS, is expected to decline into the 30s 
by 2010. 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 key reducers of absolute poverty: education; health; basic 
infrastructure; agriculture and rural development; good 
governance; and macroeconomic and financial management. A 
recent household survey indicates that the incidence of 
extreme poverty has declined from 70 percent to 55 percent 
over the past 5 years. The donor community 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. 
 
Democratic Consolidation/Rule of Law/Corruption 
--------------------------------------------- -- 
6. Mozambique has made significant progress in the 
consolidation of democracy since the signing of the 1992 Rome 
Peace Accord that ended sixteen years of civil war. On 
December 1 and 2, Mozambique will hold its third multi-party 
presidential elections since independence in 1975. The 
current constitutionally-elected president, Joaquim Chissano, 
will step down after having served since 1986, winning 
elections in 1994 and 1999. 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, 
the National Assembly passed a new Anti-Corruption Law in 
2004, 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. 
 
Workers Rights 
-------------- 
7. 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. Mozambique's labor law, currently under 
revision, is generally considered pro-worker. Labor unions 
are exerting significant pressure on the government to keep 
many of the law's provisions. In 2004, the GRM increased the 
country's statutory minimum wage by slightly more than the 
2003 inflation rate of 13 percent. 
 
Recommendation 
-------------- 
8. Post once again (ref C) believes strongly that the 
progress made by Mozambique in its economic and political 
policies further solidifies its qualification for AGOA 
benefits. Embassy Maputo is confident that this positive 
trend will continue, especially as Mozambique begins to 
benefit economically from higher levels of international 
trade and investment. 
LA LIME