US embassy cable - 05MAPUTO388

UNCLAS SECTION 01 OF 05 MAPUTO 000388 
 
SIPDIS 
SENSITIVE 
AF/S FOR TREGER 
EMBASSY HARARE FOR BILL WEISSMAN - PLEASE PASS TO VISITING 
HIRC STAFFERS CHAKA AND MARSH 
E.O. 12958: N/A 
TAGS: PREL, PGOV, MZ, Scenesetters, Nyati 
SUBJECT: MOZAMBIQUE: SCENESETTER FOR VISIT OF STAFFDEL 
FLYNN AND STAFFDEL CHAKA, MARCH 23-29 
 
1. (SBU) Introduction and Summary: Your visit to Mozambique 
will provide you an opportunity to gain a better 
understanding of issues surrounding port and coastal security 
in Mozambique, as well as insight into Mozambique's 
Millennium Challenge Account (MCA) proposal. The trip will 
also give you information on the 2004 general elections, the 
economy, and enable you to learn more from public and private 
sector interlocutors about key challenges facing the incoming 
Guebuza government, including fighting corruption, combating 
HIV/AIDS and trying to influence neighboring Zimbabwe on its 
parliamentary elections on March 31. End Introduction and 
Summary. 
 
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COASTAL AND PORT SECURITY 
------------------------- 
2. (U) Mozambique at present has very little ability to 
secure its 2,500 kilometer long coast (twice the length of 
California's). The Mozambican navy consists of a 500-person 
force that patrols only on land, since it has no operating 
vessels. In the fall of 2004 the French donated two small 
patrol boats with 80 hp engines each, suitable for harbor or 
near-shore patrols, at a cost of approximately USD 80,000. 
However the boats have remained tied at the dock, unused 
because the Navy has not found funding to pay for fuel. 
 
3. (SBU) What little water-borne patrolling that does occur 
is carried out SADC's Monitoring, Control and Surveillance 
(MCS) vessels, which occasionally patrol the fishing waters 
off Namibia and Mozambique. The MCS program is jointly 
funded by the South African Ministry of Fisheries and the 
European Union. In March 2004 an MCS vessel, the "Eagle 
Star," arrested an Indonesian-registered and PRC-registered 
vessel off Beira, Mozambique and confiscated the vessels 
catch, after it was discovered they were using illegal "wall 
of death" fishing nets. 
 
4. (SBU) Post has sought boats, though without success, 
through the DOD excess defense articles program to help equip 
the Mozambique navy. In the interim, though, we believe it 
could be more effective to fund the the MCS program above, so 
that it could expand its operations. 
 
5. (SBU) All three of Mozambique's principal ports - Maputo, 
Beira and Nacala - are in compliance with the International 
Maritime Organization's International Ship and Port Facility 
Security (ISPS) Code. 
 
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MILLENNIUM CHALLENGE ACCOUNT 
---------------------------- 
6. (SBU) MCA: Millennium Challenge Corporation (MCC) 
representatives have visited Mozambique on four 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. The MCC's most recent visit, by a 
technical team, ended March 23. 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. As a result of 
the latest visit, the technical team is refining the proposal 
to focus on water, sanitation, roads, technical assistance, 
and financing to support tourism, agricultural processing and 
the timber industry. 
 
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FRELIMO DOMINATES POLITICS 
-------------------------- 
7. (SBU) Mozambique is 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, too. 
Although the elections were marred by regularities, these 
were not significant enough to affect the outcome of the 
presidential election nor alter the final tally in the 
National Assembly 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. 
 
8. (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 results 
announced by the government. 
 
9. (SBU) FRELIMO has returned 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 will 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 
----------------------- 
10. (SBU) Although Guebuza reportedly is more nationalistic 
and less flexible than Chissano, he has indicated recently 
that, at least in the near term, he will continue policies of 
his predecessor, Joaquim Chissano. During Guebuza's 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 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, 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. 
 
11. (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 Chissano was. 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. 
 
12. (U) Guebuza has appointed a total of 26 ministers and 15 
vice ministers; 11 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 
---------------- 
13. (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 
only 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 African), account for two-three 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. 
 
14. (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 as the economy continues to grow. 
 
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INVESTMENT CLIMATE 
------------------ 
15. (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. 
? 
16. (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 entered into force 
on March 3, 2005. 
 
17. (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 one million (compared to 
USD 60 million from South Africa). Currently only one 
apparel company in Mozambique is exporting to the U.S. under 
AGOA. The BIT may provide new incentive for increasing 
bilateral investment, but Mozambique must address a number of 
the constraints mentioned in para 15 for business to improve 
rapidly. 
 
----------------------------------------- 
KEY CHALLENGES FOR THE GUEBUZA GOVERNMENT 
----------------------------------------- 
18. (SBU) Combating Corruption: President Guebuza made 
combating corruption a key theme of his successful 
presidential campaign last fall, and has often, since his 
election, repeated that his government will fight corruption. 
However, corruption has been and remains a prominent feature 
of Mozambican society, both petty and high-level. In 2001 
the Chissano government set up the Anti-Corruption Unit (ACU) 
in the Attorney General's office, funded mainly with USG 
assistance monies. Since then the ACU has indicted several 
dozen persons, but all of the indictments have been dismissed 
by the courts. In mid-March Attorney General Madeira was 
heavily criticized by representatives in Parliament for his 
annual report. They pointed to the dismissals of the cases 
of those indicted by the ACU and said his report contained 
little information on any progress toward resolving several 
other high profile cases. We intend to continue funding the 
ACU, but will stress that indictments must lead to trials. 
 
19. (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. Some 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. 
 
20. (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 U.S. commitment to helping Mozambique combat the 
disease and its effects. In the government's five year plan, 
now before Parliament for approval, it plans to transform its 
fight against HIV/AIDS into a "national emergency." 
 
21. (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. 
 
22. (SBU) Peacekeeping: 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 the African Contingency Operations and Training 
Assistance (ACOTA) program. 
 
23. (SBU) Zimbabwe: 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 particularly hesitant to engage on Zimbabwe, 
due to the close historical and personal ties between the 
countries and their leaders. In his meeting with State 
Department officials when he visited Washington in July 2004, 
Guebuza took a similar line on Zimbabwe. The GRM officials 
tell us that they are pushing Zimbabwe to hold free and fair 
parliamentary elections on March 31, although the pushing is 
behind closed doors. We are urging the GRM, through the 
regional body SADC, at a minimum to publicly give a frank 
assessment of the merits and demerits of the election once it 
is held, as a way to pressure the Mugabe regime to behave 
more responsibly. 
LALIME