US embassy cable - 05MAPUTO702

UNCLAS SECTION 01 OF 05 MAPUTO 000702 
 
SIPDIS 
SENSITIVE 
PASS TO AF/FO-CNEWMAN AND AF/S-HTREGER 
NSC FOR CCOURVILLE 
MCC FOR SGAULL 
OGAC FOR TOBIAS 
AID FOR DMENDELSON 
E.O. 12958: N/A 
TAGS: KDEM, PGOV, PREL, ETRD, ECON, MZ, Guebuza, Nyati, Scenesetters 
SUBJECT: MOZAMBIQUE: SCENESETTER FOR PRESIDENT GUEBUZA'S 
VISITS TO WASHINGTON 
 
REF: A. MAPUTO 692 
B. MAPUTO 603 
C. MAPUTO 184 
D. MAPUTO 150 
Sensitive but unclassified. Not for Internet distribution. 
 
Summary and Introduction 
------------------------ 
1. (SBU) Newly elected Mozambican President Armando Emilio 
Guebuza is one of five African heads of state to visit 
Washington on June 13 to participate in a joint meeting with 
President Bush. We understand the Department is considering 
a separate meeting for President Guebuza with Secretary Rice. 
President Guebuza's other meetings on June 13 include a 
meeting with US Global AIDS Coordinator Ambassador Tobias, 
Millennium Challenge Corporation (MCC) CEO Paul Applegarth, 
and USAID Acting Administrator Schieck (Administrator Natsios 
will be out of town). Guebuza will return to the Washington 
area on June 21-23 as head of the Mozambican delegation to 
the Corporate Council on Africa (CCA) U.S.-Africa Business 
Summit. The signing of a Trade Investment Framework 
Agreement (TIFA) with USTR is planned for June 21 in 
Washington. Guebuza will witness the signing by the 
Mozambican Minister of Industry and Trade. 
 
2. (SBU) The government of Mozambique is an Article 98 
signatory and participates in ACOTA. Mozambique is the only 
country receiving MCC and the President's Emergency Plan for 
AIDS Relief assistance. Key issues that deserve particular 
attention during Guebuza's visits include the December 2004 
presidential and parliamentary elections, the signing of a 
TIFA, HIV/AIDS, and African peacekeeping and Zimbabwe. This 
will be Guebuza's first visit to Washington as the President 
of Mozambique, and will provide an opportunity to further 
strengthen the USG's close bilateral relationship with this 
country. End Summary and Introduction. 
 
2004 General Elections: Frelimo Dominates 
----------------------------------------- 
3. (SBU) 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 elections in 1994. In December 2004 Mozambique 
held its third presidential and legislative elections. 
Guebuza won the presidency by a wide margin, defeating Renamo 
leader Afonso Dhlakama (who also ran unsuccessfully in 1994 
and 1999). Frelimo won the majority of seats in the National 
Assembly as well. Guebuza was sworn in as President on 
February 2, 2005. 
 
4. (SBU) Voter turnout in the December 2004 election was 
approximately 45 percent, down substantially from the 75 
percent turnout in 1999. Although slightly fewer Frelimo 
voters cast their ballots than did so in 1999, about half of 
the Renamo supporters did not vote. Some analysts attributed 
Renamo's poor showing to Dhlakama's late campaign start; his 
campaign kicked-off only in the last several months of 2004, 
while Guebuza had been crisscrossing the country since 2002. 
Others believe many Renamo supporters may have felt cheated 
in the very close 1999 election and cynically saw little 
point in participating. Local and international observer 
groups, including the Carter Center and European Union (EU), 
monitored the elections. The European Union declared that 
the elections were carried out in a "generally successful and 
peaceful" manner. 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 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. 
 
5. (SBU) Frelimo returned to the National Assembly in March 
even stronger ) with 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. Since then several of these small 
parties have distanced 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 
----------------------- 
6. (SBU) Although Guebuza's more nationalistic and less 
flexible approach to governing led some to fear a break with 
the Chissano era, he has so far continued key Chissano 
policies (ref A). In meetings he comes across as serious, 
intelligent, and disciplined. During his trip to the United 
States in July 2004, where he attended the Democratic 
National Convention and met with various U.S. officials, 
Guebuza repeatedly said he favored maintaining a strong 
bilateral relationship with the U.S. and that he wanted to 
work closely with 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. 
 
7. (SBU) A wealthy businessman himself, largely the result of 
his party and government positions, Guebuza has a good 
understanding of business and economic concerns, and 
maintains strong ties to the private sector. On occasion he 
has called for the "Mozambicanization" of the economy (Ref 
D), which has sparked some concern among foreign investors. 
Just what is meant by this, apart from the clear intent to 
provide more jobs for Mozambicans, is not yet clear. The 
lead commercial association in Mozambique is optimistic that 
Guebuza will be more pro-business than his predecessor. 
Guebuza has continued where he left off on the campaign 
trail, pledging that his administration is serious in its 
fight against corruption and bureaucratic inefficiency. 
 
8. (SBU) President Guebuza moved swiftly to set up his 
cabinet, naming most of its members one day into his 
presidency (ref C). We understand that the highest Frelimo 
party body, the 15-member Political Commission, vetted his 
choices and that former President Chissano, who is on the 
Commission and still wields significant power within the 
party, may have insisted on some names. 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. Guebuza appointed six former provincial 
governors to ministerial posts, a move that analysts stress 
demonstrates that he is serious about economic development in 
outlying areas of the country -- a central theme to his 
administration's five-year plan. The rest of Guebuza's 
cabinet appears to be composed of Guebuza loyalists 
relatively inexperienced for their portfolios, though 
technically competent deputies remain in all the ministries 
(ref A). 
 
Economic Affairs 
---------------- 
9. (U) Mozambique's past macroeconomic reforms and success in 
attracting large investment projects have given the country 
an average annual GDP growth rate of eight percent from 
1994-2004, the highest in Africa over this time period. This 
growth is from a very low base; per capita GNP for 2004 
registered around USD 290. Foreign direct investment, 
exports, and revenue collection all have increased 
significantly. Since the late 1990's most of the state 
companies have been privatized, with only about one dozen 
left in government hands. 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 native managerial class. 
 
10. (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 relief 
initiative. The government depends on foreign donors to 
finance about 45 percent of its budget, a dependency that is 
likely to continue for some time even as the economy 
continues to grow. 
 
Investment Climate 
------------------ 
11. (SBU) The Mozambican business climate is improving, yet 
Mozambique remains a challenging environment in which to do 
business. 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. The labor law is extremely pro-worker and an 
impediment to foreign investment, although legal revision of 
some policies is underway and may should completed by early 
2006. Land title is granted in the form of leases; private 
ownership of land is not allowed and land cannot be used as 
collateral. 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. Reform is moving in the right direction, yet it will 
take several years before significant impediments to 
investment are removed. 
 
12. (SBU) Since Guebuza's term began, the Ministry of Labor 
and the Ministry of Industry and Commerce have taken some 
steps to make it easier for business. Together they have 
opened one-stop-shops in each of the ten provinces to 
accelerate the process of registering a company. It is still 
too early to judge the effectiveness of this initiative, but 
it is a welcome sign. A U.S.-Mozambique Bilateral Investment 
Treaty (BIT) went into effect in March 2005. At present the 
Ministry of Industry and Commerce is reviewing the text of a 
U.S.-Mozambique TIFA, which hopefully will be ready for 
signature on June 21. 
 
13. (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, premium 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. 
 
14. (SBU) U.S. trade with and investment in Mozambique 
remains small. In 2004, the US imported USD 10 million in 
Mozambican 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. Other miscellaneous products, such as cashews, shrimp, 
and tobacco, are also exported to the U.S. under AGOA. The 
newest export success story is Indian Ocean Aquaculture's 
(multinational firm) sale of boxed, frozen aquaculture shrimp 
to U.S. distributors Tasty Choice and WalMart (ref B). The 
BIT may provide further incentive for increasing US 
investment, but Mozambique must address a number of the 
constraints mentioned above for business to improve rapidly. 
A TIFA would provide a venue for addressing these 
constraints. 
 
Key Issues 
---------- 
15. (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. 
 
16. (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. Since taking office, Guebuza has 
placed capable individuals at the helm of key government 
institutions like the Ministry of Health and the National 
AIDS Council, but strong statements on his part have been 
noticeably absent. With HIV/AIDS affecting an increasing 
number of Mozambicans, Guebuza will have to take a more 
active role in HIV/AIDS leadership to make meaningful gains 
(ref A). 
 
17. (SBU) MCA: Millennium Challenge Corporation 
representatives have visited Mozambique on multiple 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 2004. Mozambique submitted a concept 
paper to the MCC in late September that is focused on the 
private sector and the northern region. There has been some 
press coverage, particularly around the MCC visits. The MCC 
provided feedback on Mozambique's concept paper in late 
November, and a dialogue has been developing since then. An 
MCC technical team conducted a working visit in March and is 
returning in early June. 
 
18. (SBU) African Peacekeeping: Regional Issues: 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 African 
Contingency Operations and Training Assistance (ACOTA) 
program. ACOTA began training the first of three Mozambican 
Defense Force (FADM) battalions on April 11, 2005 and is 
expected to have all three fully trained by April 2006. We 
look forward to supporting the GRM to increase its capacity 
to contribute to peacekeeping operations. 
 
19. (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 also particularly hesitant to engage on 
Zimbabwe, due to the close historical and personal ties 
between the countries, leaders. Guebuza has visited 
Zimbabwe since taking office and has refrained from public 
criticism of Mugabe. 
 
20. (SBU) Nyati Beach Lodge: The ongoing Nyati Beach Lodge 
legal conflict involves an OPIC-supported American 
businessman in a dispute over property rights. The 
investment group to which the American belongs was issued 
rights to Nyati in 2003. On the other side, a Zimbabwean 
firm has an apparently shaky claim dating from the mid-1990s. 
In late 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, 
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 the Guebuza government will 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. Both sides are awaiting the 
Supreme Court's decision. 
 
21. (U) Corporate Council on Africa (CCA) U.S.-Africa 
Business Summit: President Guebuza will return to the US on 
June 21, along with three or four Mozambican ministers and a 
Mozambican private sector delegation of 20 individuals 
(representing services, construction, agribusiness, seafood, 
manufacturing, energy and power, telecom, and 
transportation), to take part in CCA's fifth biennial 
U.S.-Africa Business Summit in Baltimore. Guebuza is one of 
twelve African heads of state who will attend the Summit. 
Guebuza's decision to return to the U.S. for such an event is 
a testament to the importance he places on the growing trade 
and investment relationship between the U.S. and Mozambique. 
Guebuza plans to attend a TIFA signing ceremony in Washington 
with USTR Portman and the Mozambican Minister of Industry and 
Commerce Antonio Fernando on June 21. Guebuza will also 
travel to Baltimore that day for the opening of the Summit, 
where he will address the convention on African agriculture. 
He will depart Baltimore on June 23 to return to Mozambique 
in time for Mozambican Independence Day on June 25. 
La Lime