US embassy cable - 04MAPUTO1376

UNCLAS SECTION 01 OF 03 MAPUTO 001376 
 
SIPDIS 
MCC FOR PAPPLEGARTH, JHEWKO, SGAULL, MHARRINGTON, RHERING 
STATE FOR AF/S - HTREGER, EB/IFD/ODF, AND EB/TRA 
USDOC FOR AHILLIGAS 
SENSITIVE 
E.O. 12958: N/A 
TAGS: PREL, PGOV, KDEM, ECON, ETRD, MZ, MCC, Scenesetters 
SUBJECT: SCENE-SETTER FOR VISIT OF MCC CEO PAUL APPLEGARTH TO 
MOZAMBIQUE 
 
REF: A. MAPUTO 1341 
 
B. Maputo 1001 
C. Maputo 1183 
 
1. (SBU) Introduction and Summary: Your visit to Mozambique will 
provide an opportunity to gain a better understanding of the 
Mozambican political environment, government, private sector, 
civil society, and MCC team and to increase Mozambican 
understanding of the MCC. You will be here during the campaign 
for December national elections. This message provides 
background on the elections, trade and investment, the fight 
against HIV/AIDS, poverty reduction, and other topics. End 
Introduction and Summary. 
 
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MOZAMBIQUE AND DEMOCRACY 
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2. (SBU) Mozambique is rightly considered a post-conflict success 
story. Since the signing of the 1992 Rome Peace Accords that 
ended sixteen years of civil war, Mozambique has made significant 
progress in promoting economic reforms and advancing democracy. 
On December 1 and 2, Mozambique will hold its third multi-party 
presidential elections since independence in 1975 (Ref A). The 
current president, Joaquim Chissano, will step down after having 
served since 1986, winning elections in 1994 and 1999. 
 
3. (SBU) During November 2003 municipal elections, the ruling 
party, FRELIMO, won all but four of the country's 33 mayorships 
in what were considered generally free and fair elections. 
RENAMO's four mayoral wins and five city council wins signaled 
the first time that it took power on a local level. All of the 
RENAMO wins were in the central and northern provinces; two of 
them were in major port cities that have a significant impact on 
economic growth in Mozambique. Prior to and during these 
elections, the president of the major opposition party (RENAMO), 
Afonso Dhlakama, alleged intimidation and political harassment of 
voters by FRELIMO authorities - - a complaint repeatedly 
announced by RENAMO supporters during past elections. The GRM 
passed a new general elections law in May of 2004 that will allow 
for greater transparency in the process of vote counting and 
dissemination of electoral results. Mozambican electoral 
authorities estimate just over 9 million Mozambicans are 
registered to vote in the December general elections. Though 
leading presidential candidates Armando Guebuza of FRELIMO and 
Afonso Dhlakama of RENAMO have called for a transparent and 
peaceful process, there are signs of increasing tensions. In a 
recent turn of events, the GRM, through the National Elections 
Committee (CNE), has announced that it will not allow 
international observers to participate in observation of the 
final vote counting stage (national level validation). The 
European Union, which helps fund the elections and sends a team 
of official observers, is concerned and is considering next 
steps. The Carter Center also plays an important role in 
observing elections and conducting a parallel vote tabulation 
(PVT) financed by the U.S. Mission. 
 
4. (SBU) The electoral campaign begins on October 17 and 
continues until three days prior to the elections. Many 
government officials will be out of Maputo campaigning during 
your visit. 
 
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A WORD ON THE PRESIDENTIAL CANDIDATES 
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5. (SBU) Though Guebuza belongs to a different ideological camp 
within the FRELIMO party and is considered less flexible than is 
Chissano, he has indicated that he is likely to continue current 
government policies if elected. On his trip to the United States 
in July, when he attended the Democratic National Convention and 
visited you, the Global AIDS Coordinator's office (S/GAC), the 
Corporate Council on Africa (CCA), and the State Department, 
Guebuza reiterated the importance of maintaining a strong 
Mozambique-U.S. relationship and stressed that he would honor 
commitments with donor communities and international financial 
institutions (IFIs). A businessman himself as a result of his 
party and government positions, Guebuza demonstrates 
understanding of business and economic concerns and reaches out 
to the private sector community. Guebuza is known as a strong 
nationalist and has on occasion called for the 
"Mozambicanization" of businesses (Ref B). This causes some 
concern for foreign investors - both existing and potential. 
Guebuza acknowledges the extensive US commitment to helping 
Mozambique overcome the challenges of poverty and HIV/AIDS. He 
comes across as a serious and intelligent candidate. 
 
6. (SBU) Dhlakama has been President of RENAMO since 1980 and led 
its forces during the civil war against the FRELIMO government. 
Since the signing of the Rome Peace Accords in 1992, Dhlakama has 
played a crucial role in transforming RENAMO into a viable 
political party and keeping the disparate factions of his party 
from lapsing back into violence. Regarding priorities for the 
country, he has stressed the need for greater progress on 
judicial reform and fighting corruption, as well the importance 
of developing national economic production, particularly in 
small-to-medium sized businesses (Ref C). If RENAMO wins the 
elections, one of the party's major challenges will be to find 
technically competent people to fill key government positions. 
During Dhlakama's September visit to the United States, he 
attended the Republican National Convention and he met with you, 
the State Department, and the National Security Council (NSC). 
Dhlakama describes himself as a friend of the U.S. and will seek 
to strengthen the Mozambique-U.S. relationship if elected. 
 
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THE STATE OF ECONOMIC AFFAIRS 
------------------------------ 
7. (U) Mozambique's recovery from the devastation of civil war, 
its macroeconomic reforms, and its success in attracting large 
investment projects have resulted in an average GDP growth rate 
of eight percent from 1992-2003, the highest in Africa over this 
time period. Foreign direct investment, exports, and revenue 
collections have seen notable increases, and privatization 
continues but has slowed in recent years. GDP growth for 2003 
was approximately seven percent, and the government expects the 
economy to continue to expand at a rate between 7-10 percent. 
 
8. (U) Maintaining this high rate of growth hinges on several 
major foreign investment projects, continued economic reform, and 
the revival of the agriculture, transportation, and tourism 
sectors. This growth is from a low base; per capita GNP for 2002 
was around $200. Inflation for 2003 was 13 percent, in line with 
the levels of recent years. 
 
9. (SBU) The Mozambican business climate remains a work in 
progress. Excellent macroeconomic policies and high-level 
commitment to attracting business mask a bureaucracy that remains 
at times unresponsive to the needs of corporations, especially 
small-to-medium-sized enterprises. Permits are slow; corruption 
is problematic; and the legal system is antiquated. Although 
under revision, the labor law is extremely pro-worker and remains 
an impediment to foreign investment. Land tenure at present 
relies on a lease system without private ownership. Donors are 
working extensively with the GRM to modernize and improve the 
current commercial code, labor law, business registration 
process, tax system, and land ownership policy. Although reform 
is moving in the right direction, it is expected to take several 
years before significant impediments to investment are removed. 
Infrastructure is poor and was further damaged by severe floods 
in 2000. Important strides have been made to improve the 
situation, most notably in road infrastructure. 
 
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COMMERCIAL OPPORTUNITIES AND MEGA-PROJECTS 
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10. (U) Mozambique offers substantial investment and commercial 
opportunities in energy generation (hydropower, coal, and gas), 
transportation (road construction, rail and port services, 
airport construction, and air transport), resource extraction 
(natural gas, minerals, timber, and fishing), aquaculture, 
agriculture/horticulture (cereals, cashews, cotton, sugar, 
vegetables, flowers, and citrus; light industry), and tourism. 
 
11. (U) Mozambique's rapid economic growth is enhanced by the 
operation of several mega-projects. These include the MOZAL 
aluminum smelter (Australia), the newly inaugurated SASOL gas 
pipeline (South Africa), and soon-to-be operational mining and 
heavy sands projects in Gaza and Nampula Provinces (Australia and 
Ireland). The GRM works closely with large investors by creating 
government-investor task forces to address issues and concerns 
large investors confront when working in the Mozambican business 
environment. The GRM is very responsive to these investors and 
has created several "special economic zones" and "export 
processing zones" which provide incentives to investors involved 
in mass-production and export and those investing in 
traditionally poor and under-developed areas. Mozambique's mega- 
projects are said to account for 2-3 percentage points of the 
country's seven percent GDP growth and a much larger share of 
export growth. 
 
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KEY BILATERAL ISSUES - IN BRIEF 
-------------------------------- 
12. (SBU) A) Elections: The USG is supporting the electoral 
process through financial assistance to the Carter Center and 
domestic observer groups. As we did during the 2003 municipal 
elections, post will send observers to key municipalities 
throughout the country. 
B) Trade & Investment: Mozambique has yet to take full advantage 
of AGOA, and US trade and investment in Mozambique remains small. 
Currently, only one apparel company in Mozambique is exporting 
under AGOA, with a second company, owned by the Aga Khan 
Foundation, expected to begin operations shortly. 
C) HIV/AIDS: Mozambique is at a critical stage in its efforts to 
stem the HIV/AIDS epidemic. In Southern Africa, Mozambique 
presents both the greatest challenges and possibly the greatest 
opportunity to become the next Uganda-like success in turning 
around the HIV/AIDS threat. Despite occasional criticism from the 
health minister, we have made considerable efforts to ensure that 
the President's Emergency Plan For AIDS Relief (PEPFAR) is seen 
as a collaborative approach to addressing the epidemic. 
Mozambique is the only country to be both a focus country under 
the PEPFAR and eligible to submit an MCC proposal in FY04. 
 
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MCA IN MOZAMBIQUE 
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13. (SBU) Mozambican government officials, civil society leaders, 
and private sector groups are broadly aware of the MCA and 
Mozambique's FY04 eligibility for the program. This will be the 
third MCC team visit to Mozambique since Mozambique was selected 
as part of the group of 16 eligible countries in May. The first 
visit took place June 8-11 and served largely to introduce the 
MCC and meet Mozambican officials leading the proposal process. 
The second visit took place in early September and allowed for 
the MCC's familiarization with Mozambique and the draft proposal. 
On October 4, Prime Minister Luisa Diogo met in Washington with 
MCC officials John Hewko, Thomas Briggs, and Stephen Gaull and 
discussed Mozambique's submission of a proposal Although the CTA 
business group and the Mozambique-US Chamber of Commerce have 
circulated the proposal widely, the government has not yet 
released it and it has not been covered in the press. We do not 
know whether the government's reluctance to release the proposal 
so far is related to electoral concerns. 
DUDLEY