US embassy cable - 05MAPUTO7

UNCLAS SECTION 01 OF 03 MAPUTO 000007 
 
SIPDIS 
STATE FOR H DPARKS, AF/S TREGER, AF/EX HEFFERMAN, 
EB/IFD/ODF, AND EB/TRA, 
USAID FOR AFR/SA DMENDELSON AND LPA/CL - SWILLIAMS 
USDOC FOR RTELCHIN 
MCC FOR SGAULL, TBRIGGS 
SENSITIVE 
E.O. 12958: N/A 
TAGS: PREL, KHIV, KMCA, ECON, ETRD, MZ, Scenesetters, MCC 
SUBJECT: SCENE-SETTER FOR VISIT OF STAFFDEL MCLEAN TO 
MOZAMBIQUE 
 
REF: A. Maputo 1645 NOTAL 
B. Maputo 1001 NOTAL 
C. Maputo 1183 NOTAL 
Sensitive but Unclassified Handle Accordingly. Not for 
Internet Distribution. 
 
1. (SBU) Introduction and Summary: Your visit to Mozambique 
will provide an opportunity to gain a better understanding 
of the U.S. contribution in the fight against HIV/AIDS and 
Mozambique's Millennium Challenge Account (MCA) concept 
paper. You are arriving just after presidential and 
legislative elections. President Joaquim Chissano will be 
succeeded within several weeks by President-elect Armando 
Guebuza, who is also from the FRELIMO party. We expect 
Guebuza will re-shuffle the cabinet and appoint new 
governors. This means that some of the individuals you 
will encounter or hear about might not be in office for 
long. This message provides background on the elections, 
trade and investment, HIV/AIDS, poverty reduction, and 
other topics. End Introduction and Summary. 
 
------------------------ 
MOZAMBIQUE AND DEMOCRACY 
------------------------ 
2. (SBU) Mozambique is rightly considered a post-conflict 
success story. Since the signing of the 1992 Rome Peace 
Accords, which ended sixteen years of civil war, Mozambique 
has made significant progress on stabilization and 
democratic development. FRELIMO has been the ruling party 
in Mozambique since independence. FRELIMO's former military 
opponent, RENAMO, has been the main opposition party. In 
November 2003 Mozambique held municipal elections, which 
resulted in a major win for the ruling party, FRELIMO, and 
were generally regarded as free and fair. In December 
2004, Mozambique held its third multi-party presidential 
and legislative elections since independence. Armando 
Guebuza, the FRELIMO candidate, won the presidency by a 
wide margin, and FRELIMO candidates won most of the seats 
in the National Assembly. Although the elections were 
marred by irregularities, they were not significant enough 
to affect the outcome of the presidential election. (ref 
A). Guebuza will replace Joaquim Chissano, who has ruled 
Mozambique since 1986, early in the new year. 
 
3. (SBU) During November 2003 municipal elections, FRELIMO 
won all but four of the country's 33 races for mayor. 
RENAMO's four mayoral wins and five city council wins gave 
it, for the first time, a governing role at any level. All 
of the RENAMO wins were in the central and northern 
provinces, and included the important port cities of Beira 
and Nacala. 
 
4. (SBU) FRELIMO will return to Parliament with a strong 
majority 160 out of 250 seats -- up from its current 133 
and just seven short of the two-thirds majority needed to 
amend the constitution. A coalition of RENAMO and several 
small parties won the 90 remaining seats (Comment: As of 
January 3, it is unclear whether RENAMO or its allied 
parties will seat representatives in Parliament. RENAMO, 
particularly, has denounced the elections as unfair and has 
vowed not to participate in Parliament. It made the same 
boycott threat in 1999 but changed its mind after several 
weeks and joined Parliament. End comment.) The voter 
participation rate was only around 45 percent. Several 
local, regional, and international observer groups, 
including the Carter Center, monitored the elections. The 
Presidency of the European Union said that the elections 
were carried out in a "generally successful and peaceful" 
manner, and "broadly conducted along the lines of 
internationally established standards". The EU publicly 
stated that irregularities should be investigated and 
resolved in accordance with the law. The Carter Center 
made similar comments. 
 
--------------------------------- 
A WORD ON PRESIDENT-ELECT GUEBUZA 
--------------------------------- 
5. (SBU) Although Guebuza reportedly is more nationalistic 
and less flexible than is Chissano, he has indicated 
recently that he is likely to continue current government 
policies. During his trip to the United States in July, 
where he attended the Democratic National Convention and 
met with U.S. officials, Guebuza repeatedly said he favored 
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 has a good understanding 
of business and economic concerns and has close ties to the 
private sector community. Guebuza has, on occasion, called 
for the "Mozambicanization" of businesses (Ref B), which 
has sparked some concern among 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 serious and 
intelligent. 
 
----------------------------- 
THE STATE OF ECONOMIC AFFAIRS 
----------------------------- 
6. (U) Recovering from a devastating civil war, 
Mozambique's macroeconomic reforms and success in 
attracting large investment projects have given the country 
an average GDP growth rate of eight percent from 1992-2004, 
the highest in Africa over this time period. This growth 
is from a very low base; per capita GNP for 2004 is 
projected at around USD 290. Foreign direct investment, 
exports, and revenue collections all have seen notable 
increases, and the government continues to privatize state 
firms, albeit at a slower pace than in the late 1990's. 
 
7. (U) Maintaining this high rate of growth hinges on 
several major foreign investment projects (aluminium, 
natural gas), continued economic reform, and the growth of 
the agriculture, transportation, and tourism sectors. 
The inflation rate for 2004 was around 11 percent, in line 
with the levels of recent years. 
 
8. (SBU) The Mozambican business climate needs improvement. 
Generally sound 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. Obtaining 
permits takes time, corruption is problematic, and the 
legal system is antiquated and cumbersome. Although 
revisions are being considered, the labor law remains 
extremely inflexible and an impediment to foreign 
investment. Land title is granted in the form of leases; 
private ownership of land is not allowed. Donors are 
working extensively with the GRM to modernize and improve 
the commercial code, labor law, business registration 
process, tax system, and land ownership policy. Although 
reform is moving in the right direction, it will take 
several years before significant impediments to investment 
are removed. Mozambique's road network is quite limited 
and in poor condition along many stretches, although major 
repair work is underway. 
 
------------------------------------------ 
COMMERCIAL OPPORTUNITIES AND MEGA-PROJECTS 
------------------------------------------ 
9. (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. In December 2004, the 
Government of Mozambique ratified the U.S.-Mozambique 
Bilateral Investment Treaty (BIT) that was signed in 1998 
and ratified by the U.S. in 2001. 
 
10. (U) Several mega-projects, funded by outside investors, 
are important contributors to Mozambique's rapid economic 
growth. These enterprises include the MOZAL aluminum 
smelter (an Australian investment), 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 concerns about 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," 
some located in poor and under-developed areas. 
Mozambique's mega-projects account for 2-3 percentage 
points of the country's GDP growth and a much larger share 
of its export growth. 
 
-------------------------- 
THE FIGHT AGAINST HIV/AIDS 
-------------------------- 
11. (U) 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. 
We have made considerable efforts to ensure that the 
Emergency Plan For AIDS Relief is seen as a collaborative 
approach to addressing the epidemic by working closely with 
the government, other donors, and domestic and 
international NGOs. Mozambique is the only country to be 
both a focus country under the Emergency Plan for AIDS 
Relief and eligible to receive FY04 and FY05 MCA funding. 
(NOTE: We will send via email a more detailed briefing on 
U.S. activities to combat HIV/AIDS in Mozambique. END 
NOTE.) 
 
----------------- 
MCA IN MOZAMBIQUE 
----------------- 
12. (SBU) Mozambican government officials, civil society 
leaders, and private sector groups are generally aware of 
the MCA and Mozambique's FY04 and FY05 eligibility for the 
program. MCC representatives have visited Mozambique on 
three occasions since Mozambique was selected as part of 
the first group of 16 eligible countries in May 2004, with 
MCC CEO Applegarth visiting in October. Mozambique 
submitted a concept paper to the MCC in late September that 
is focused on the private sector and the northern region. 
The government entrusted the CTA, a confederation of 
business associations and also the private sector 
representative on Mozambique's MCA Technical Group, with 
the responsibility for drafting Mozambique's concept paper. 
Although the CTA and the Mozambique-US Chamber of Commerce 
have circulated the concept paper widely both in public 
meetings around the country and on the internet, the 
government has not yet officially released it. There has 
been some press coverage, particularly around the MCC 
visits, but as yet no in-depth presentation and analysis of 
the concept paper by the media. The MCC provided feedback 
on Mozambique's concept paper in late November, and a 
dialogue has been developing since then with responses to 
the initial feedback now being produced. 
 
13. (U) In brief, the Mozambique concept is expected to 
"promote business, investment, and employment". The 
program will reduce poverty and spur growth by lowering 
costs and risks of doing business in Mozambique while 
improving the competitiveness of the private sector. The 
four priority areas are: 
- policy reform to improve the trade and business 
environment, 
- business development assistance to increase trade and 
competitiveness of firms, 
- infrastructure improvements to facilitate trade and 
reduce transaction costs, and, 
-select education, health, and sanitation initiatives to 
improve social conditions in Northern Mozambique. 
The concept paper states that the program has the potential 
to create 5,000 direct jobs, 1.7% incremental GDP growth, 
and a reduction in poverty from 54 percent to 45 percent 
after 10 years. The budget for the proposed program is USD 
148 million. 
DUDLEY