US embassy cable - 05MAPUTO232

UNCLAS SECTION 01 OF 05 MAPUTO 000232 
 
SIPDIS 
SENSITIVE 
AF/S FOR HERB TREGER, AF/FO 
E.O. 12958: N/A 
TAGS: PREL, PGOV, MZ, Scenesetters, Nyati 
SUBJECT: MOZAMBIQUE: SCENESETTER FOR VISIT OF ASSISTANT 
SECRETARY FOR AFRICAN AFFAIRS CONNIE NEWMAN, MARCH 1-3 
 
SIPDIS 
 
REF: A. MAPUTO 161 
B. 04 MAPUTO 1645 
C. 04 MAPUTO 1001 
Sensitive but unclassified. Handle accordingly. Not for 
Internet distribution. 
 
1. (SBU) Introduction and Summary: Your visit to Mozambique 
will give you an opportunity to meet leading members of the 
new Guebuza government and convey to the government and the 
public our support for Mozambique's development and HIV/AIDS 
efforts. You also may wish to encourage continued movement 
towards a compact with the MCC and emphasize our concern over 
the investment dispute concerning the OPIC-supported U.S. 
investor in the Nyati Beach Lodge. It may be useful to raise 
with Foreign Minister Abreu regional issues and explain the 
importance we place on obtaining rights that will allow us to 
acquire a site for a New Embassy Compound. This message 
provides background on those issues, as well as on the 
political situation and the economy. End Introduction and 
Summary. 
 
-------------------------- 
FRELIMO DOMINATES POLITICS 
-------------------------- 
2. (SBU) Mozambique is rightly considered a post-conflict 
success story. Since the signing of the 1992 Rome Peace 
Accord, which ended sixteen years of civil war, Mozambique 
has made significant progress as a young, multi-party 
democracy. FRELIMO led the independence struggle and has 
been the ruling party in Mozambique since Portuguese colonial 
rule ended in 1975. FRELIMO's military opponent during the 
subsequent civil war, RENAMO, has been the main opposition 
party since the first presidential and legislative elections 
were held in 1994. In November 2003, municipal elections 
resulted in a major win for FRELIMO and were generally 
regarded as free and fair. The following year, in December 
2004, Mozambique held its third presidential and legislative 
elections. Guebuza won the presidency by a wide margin, 
defeating perennial RENAMO candidate and RENAMO president 
Afonso Dhlakama. FRELIMO won the majority of seats in the 
National Assembly as well. Although the elections were 
marred by irregularities, these were not significant enough 
to affect the outcome of the presidential election nor alter 
the final tally in the National Assembly (Ref B) by more than 
two or three seats out of the Assembly's 250. Guebuza was 
sworn in as President on February 2, 2005, and announced most 
of his cabinet the next day. 
 
3. (SBU) Voter turnout in the December 2004 election was a 
disappointing 40 - 45 percent, down substantially from the 
nearly 75 percent turnout in 1999. Although slightly fewer 
FRELIMO voters cast their ballots than did so in 1999, about 
half of former RENAMO supporters did not vote. Some analysts 
explain the poor RENAMO showing by saying that Dhlakama began 
campaigning too late, only in the last several months of 
2004, while Guebuza had been crisscrossing the country since 
2002. And some believe many RENAMO backers may have felt 
cheated in the very close 1999 election and therefore 
cynically saw little point in participating. Several local, 
regional, and international observer groups, including the 
Carter Center, monitored the elections. The Presidency of 
the European Union declared that the elections were carried 
out in a "generally successful and peaceful" manner, and 
"broadly conducted along the lines of internationally 
established standards." However, the EU noted that there 
were irregularities and publicly stated that they should be 
investigated and resolved in accordance with the law. The 
Carter Center made similar statements, though they were more 
forceful in their criticism of the National Elections 
Commission's administration of the elections and the 
subsequent lack of transparency in the tabulation phases. 
All agreed, nonetheless, that final results broadly reflected 
the will of voters. An independent parallel vote count that 
USAID helped support tracked very closely with the final 
results announced by the government. 
 
4. (SBU) FRELIMO will return to the National Assembly in 
March with a strong showing -- 160 out of 250 seats -- up 
from its previous 133 and just seven short of a two-thirds 
majority. RENAMO won 84 seats and an allied coalition of 
small parties took the remaining six. Recent press reports 
indicate several of these small party deputies may distance 
themselves from RENAMO. RENAMO's unexpectedly poor showing 
has led to disarray within the party, and Dhlakama's 
leadership is being called into question by some. 
 
----------------------- 
GUEBUZA AND HIS CABINET 
----------------------- 
5. (SBU) Although Guebuza reportedly is more nationalistic 
and less flexible than Chissano, he has indicated recently 
that he will continue current government policies, at least 
in the near term. During his trip to the United States in 
July, where he attended the Democratic National Convention 
and met with you and other U.S. officials, Guebuza repeatedly 
said he favored maintaining a strong Mozambique-U.S. 
relationship and stressed that he wanted to work closely with 
donors and international financial institutions (IFIs). Both 
the IMF and World Bank are very active in Mozambique, and the 
GRM's economic policies -- particularly its poverty reduction 
strategy -- adhere to guidelines set out by both 
institutions. A wealthy businessman himself, largely the 
result of his party and government positions, Guebuza has a 
good understanding of business and economic concerns and 
strong ties to the private sector. On occasion Guebuza has 
called for the "Mozambicanization" of businesses (Ref C), 
which has sparked some concern among foreign investors -- 
both existing and potential. Just what he means by this, 
apart from the clear intent to provide more jobs for 
Mozambicans, is not yet obvious. He comes across as serious, 
intelligent, and disciplined. 
 
6. (SBU) President Guebuza has moved swiftly to set up his 
cabinet; he named most of its members one day into his 
presidency. We understand that the highest FRELIMO party 
body, the Political Commission (15 members), vetted his 
choices and that former President Chissano (who is on the 
Commission) may have insisted on some names; more accurately, 
then, the cabinet is both Guebuza's and FRELIMO,s. The 
cabinet members, according to press reports, in the main are 
leaders who will push forward Guebuza's wishes rather than 
technocrats, stalwarts in FRELIMO, and many have moved up 
from positions as provincial governors. Analysts stress that 
the latter attribute demonstrates that Guebuza is serious 
about economic development in outlying areas of the country 
-- a central theme in his inaugural address. The lead 
commercial association in Mozambique is optimistic that 
Guebuza will be more pro-business than his predecessor. 
There are some important holdovers from the Chissano 
administration -- Prime Minister Luisa Diogo, Defense 
Minister Tobais Dai, and veteran Minister in the Presidency 
for Diplomatic Affairs Francisco Madeira. One surprise 
appointment is that of Alcinda Abreu, FRELIMO,s 2004 general 
elections campaign manager, as Foreign Minister. Although 
considered talented and energetic, she was trained as a 
psychologist and has worked on social welfare and women's 
issues. She faces a steep learning curve; some believe that 
Madeira will be the lead advisor for President Guebuza on 
foreign affairs, at least in the near future. We are seeking 
meetings with you for both Abreu and Madeira, as well as 
President Guebuza and Prime Minister Diogo. 
 
7. (U) Guebuza has appointed a total of 26 ministers and 15 
vice ministers; eleven of them are women (seven ministers and 
four vice ministers). This compares with a government of 24 
ministers and 18 vice ministers under Chissano, eight of whom 
(three ministers and five vice ministers) were women. 
 
---------------- 
ECONOMIC AFFAIRS 
---------------- 
8. (U) Mozambique's macroeconomic reforms and success in 
attracting large investment projects have given the country 
an average GDP growth rate of eight percent from 1994 (two 
years after its devastating civil war ended) through 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. Mozambique's 
mega-projects, such as the MOZAL aluminum smelter (an 
Australian investment) and the newly inaugurated SASOL gas 
pipeline (South Africa), account for 2-3 percentage points of 
the country's GDP growth and dominate its exports. Several 
other mega-projects - a coal mine to be operated by a 
Brazilian firm in Tete province, and two alluvial heavy metal 
mines - are in the beginning stages of development. Guebuza 
welcomes such investment, but has expressed concern that 
Mozambique needs to rapidly develop small and medium-size 
businesses, both for jobs and to foster the growth of a 
managerial class of native Mozambicans. 
 
9. (U) Over the past decade, the government has followed IMF 
and World Bank guidelines on economic issues. The inflation 
rate for 2004 was around 11 percent, in line with the levels 
of recent years. The USG has forgiven all of Mozambique's 
debt - USD 151 million - with the final USD 50 million 
forgiven in 2002 as part of Mozambique's HIPC initiative 
relief. The government depends on foreign donors to finance 
half of its budget, a dependency likely to continue for some 
time even if the economy continues to grow. 
 
------------------ 
INVESTMENT CLIMATE 
------------------ 
10. (SBU) The Mozambican business climate is improving, but 
still has a long way to go to meet Western standards. 
Generally sound macroeconomic policies and a high-level 
commitment to attracting business mask a bureaucracy that 
remains at times unresponsive to the needs of the private 
sector, 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 tenure is granted through leases covering land use; the 
Mozambican constitution invests ownership of all national 
territory in the State. Donors, including USAID, 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, Mozambique still rates as 
'mediocre' on many economic and investment competitiveness 
indicators. Mozambique's road network is quite limited and 
in poor condition along many stretches, although major repair 
work is underway. Much of the countryside lacks electricity. 
? 
11. (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. The GRM has been very 
responsive to large-scale investors, and has created several 
"special economic zones" and "export processing zones," some 
located in poor and under-developed areas. 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. The Treaty enters into force 
on March 3, 2005. 
 
12. (SBU) US trade with and investment in Mozambique remains 
small. In eleven months of 2004, the US imported USD 10 
million in goods (mainly seafood, garments, cashews) and 
exported USD 49 million in products (wheat, corn, tractors, 
milk products) to Mozambique. Investments from the U.S. in 
2004 totaled slightly less than USD 1 million (compared to 
USD 60 million from South Africa). Currently, only one 
apparel company in Mozambique is exporting to the US under 
AGOA. The newly ratified BIT may provide new incentive for 
increasing bilateral investment, but Mozambique must address 
a number of the constraints mentioned in para 9 above for 
business to improve rapidly. 
 
---------- 
KEY ISSUES 
---------- 
13. (U) HIV/AIDS: Mozambique is at a critical stage in its 
efforts to stem the HIV/AIDS epidemic. HIV/AIDS prevalence 
in Mozambique has risen from 3.3 percent of adults in 1992 to 
almost 15 percent in 2004. The central region is worst 
affected, with an estimated prevalence of 35 percent in urban 
areas of Sofala province. 1,400,000 adults (15-49) are 
currently living with HIV/AIDS, but only 5,600 are on ARVS. 
The estimated number of AIDS orphans in Mozambique is 
273,000. Challenges include current rates of high-risk 
behavior, the low age of sexual debut, multiple partners, and 
low use of condoms in high-risk encounters. The Mission has 
made considerable efforts to ensure that the President's 
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. Under the first full year of the Emergency Plan 
implementation, U.S. agencies supported anti-retroviral 
treatment for approximately 5,000 Mozambicans. 
 
14. (U) Mozambique is one of 15 priority countries under the 
President's Emergency Plan for AIDS Relief. The Emergency 
Plan will provide approximately USD 48 million for our 2005 
Country Operational Plan (COP), up from USD 25.5 million for 
the 2004 COP. All agencies at post, including State, USAID, 
CDC, the Peace Corps, and Defense, are part of our effort, 
and we make sure to mention in every public speaking 
opportunity the urgency of fighting HIV/AIDS. In his 
Washington visit last July, Guebuza acknowledged the 
extensive US commitment to helping Mozambique combat the 
disease and its effects. 
 
15. (SBU) Nyati Beach Lodge: The ongoing Nyati Beach Lodge 
legal conflict involving an OPIC-supported American 
businessman offers a prime example of why Mozambique remains 
an unstable environment for potential investors. The upscale 
Vilanculos-area resort is the subject of competing land 
claims between the American, whose investment group was 
issued rights to the Nyati lands in 2003, and a Zimbabwean 
firm with an apparently shaky claim dating from the 
mid-1990s. In 2004 a provincial judge found in favor of the 
Zimbabwean, which led to the American's eviction from the 
lodge on January 6, 2005. Subsequently the Mozambican 
Supreme Court ordered the suspension of the eviction order, 
and police left the lodge, but the provincial judge has 
refused to enforce the order in a way that would force police 
to remove the Zimbabwean. The American is hoping to pressure 
the new government to evict the Zimbabweans based on the 
Supreme Court's order, and is also hoping the Supreme Court 
will reverse the lower court's decision that favors their 
claim. Over the past several months, the Embassy has 
contacted many high-level officials about the Nyati 
situation, and your visit provides an opportunity to 
underscore our concern with the new government. 
 
16. (SBU) NEC: Your visit also provides an opportunity to 
emphasize to Foreign Minister Abreu our interest in obtaining 
a site for a New Embassy Compound. As Mozambican law does 
not allow ownership of land, we will need Ministry approval 
for a "bundle of rights" agreement that would give us rights 
similar to those provided by land ownership. You can 
emphasize to the Minister that without such rights, we would 
not be able to make the multi-million-dollar investment, 
which incidentally would create many Mozambican construction 
jobs. We have identified a site, and once we have a bundle 
of rights agreement - we need to present a draft to the 
Ministry - we will need to settle on a price and other terms 
with the consortium holding the existing concession. 
 
17. (SBU) MCA: Millennium Challenge Corporation 
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, 
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. We understand that the MCC may 
visit again to follow up as soon as mid-March. 
 
18. (SBU) Regional Issues/ACOTA: During his Presidency of the 
African Union (AU), President Chissano was actively engaged 
on broader African issues and sought to use his AU Presidency 
both to build stronger African institutions and to find 
African-led solutions to Africa's problems. Mozambique's 
participation in the AU's peacekeeping operations in Burundi 
is one such example. Post is working to assist the 
Mozambican military in further developing its peacekeeping 
capacity, especially through the ACOTA program. ACOTA held a 
Strategy and Planning Conference in September 2004 and is 
planning a follow-up in late February to plan future training 
phases. We look forward to supporting the GRM increase its 
capacity to contribute to peacekeeping operations, and we 
expect to continue our engagement under the Guebuza 
administration. 
 
19. (SBU) Despite the support for the AU peacekeeping 
efforts, the GRM has been hesitant to point the finger at 
other African governments over human rights violations and 
has historically abstained from voting on any such 
resolutions, including the recent EU resolution on human 
rights violations in Darfur. Late last year, Mozambique also 
voted in favor of non-action motions on the UN human rights 
resolutions for Sudan and Zimbabwe. GRM officials state that 
Mozambique, instead of criticizing actions, prefers to focus 
on what can be done to address such issues within the 
regional institutions (e.g., the AU). Mozambique, under 
Chissano, was also particularly hesitant to engage on 
Zimbabwe, due to the close historical and personal ties 
between the countries, leaders. In his meeting with you 
when he visited Washington in July 2004, Guebuza took a 
similar line on Zimbabwe as Chissano has. 
LALIME