US embassy cable - 05MAPUTO1313

UNCLAS SECTION 01 OF 03 MAPUTO 001313 
 
SIPDIS 
AF/S - TREGER, AF/EPS - TRIMBLE 
E.O. 12958: N/A 
TAGS: ETRD, ECON, MZ, AGOA 
SUBJECT: MOZAMBIQUE - AGOA ELIGIBILITY REPORT FOR 2006 
 
REF: STATE 170577 
1. Summary: Mozambique meets the requirements for benefits 
under the African Growth and Opportunity Act (AGOA). The 
Government of the Republic of Mozambique (GRM) continues to 
make progress in establishing a market-based economy, 
eliminating barriers to US trade and investment, reducing 
poverty, promoting democracy, and protecting workers' rights. 
This positive trend should continue, especially as 
Mozambique begins to benefit economically from higher levels 
of international trade and investment, and deepens its trade 
ties with the United States under the Bilateral Investment 
Treaty (BIT) and Trade and Investment Framework Agreement 
(TIFA). End Summary. 
 
Market-Based Economy 
-------------------- 
2. Mozambique continues to have one of the most dynamic and 
fastest-growing economies in sub-Saharan Africa, although the 
growth is from a very low base. Mozambique's decade-long 
commitment to sound macroeconomic policies and structural 
reform, though it remains supported by substantial donor 
assistance, has led to a significant improvement in economic 
performance. Real GDP growth since 1993 has averaged 8.1 
percent annually, and measured 7.2 percent in 2004. 
Inflation was 9.1 percent in 2004. In 2005 real GDP growth 
is projected to increase to 7.7 percent and inflation 
targeted to decline to 8 percent. These achievements were 
facilitated by a stable political situation, as illustrated 
by the smooth transition to a new administration following 
the 2004 presidential and parliamentary elections. 
Mozambique encourages foreign direct investment, and the CPI, 
the government's Investment Promotion Center, has been active 
in bringing investors into Mozambique. Foreign investors 
have participated without impediments in Mozambique's 
privatization program. 
 
3. Since the end of the civil war in 1992, the GRM has 
privatized more than 1,200 enterprises. Approximately a 
dozen large state-owned or operated companies remain, in the 
following sectors: telecommunications, electricity, 
insurance, oil and gas exploration, port and rail, airlines 
and airports, water supply, and fuel distribution. Private 
investors manage and are rehabilitating the main ports of 
Maputo, Beira, Nacala and Quelimane through concession 
agreements. Negotiations were finalized in August 2004 on 
the Nacala Corridor Development Project for the 
rehabilitation and modernization of the railroad and port 
system on a key transport route between Malawi, Zambia and 
Mozambique. In November 2004 a consortium led by Brazilian 
Companhia Vale do Rio Doce (CVRD) won rights to a massive 
coal deposit concession in the Moatize region of central 
Mozambique. Tenders for the restructuring of the state-owned 
telecommunications company may be launched in late 2005 or 
2006. Mozambique retained its international credit rating of 
B/B by Standard and Poors, reflecting Mozambique's positive 
track record on economic reforms, political stability, strong 
economic growth, openness to FDI, and expanding exports. 
 
Elimination of Barriers to US Trade/Investment 
--------------------------------------------- - 
4. Although quite small, U.S.-Mozambican trade is expanding, 
with the vast majority of Mozambique's exports to the US 
entering under either AGOA or GSP. Mozambique's 2004 exports 
under AGOA and its GSP provisions were valued at USD 8 
million, representing 80 percent of the country's total 
exports to the United States. The EU is the largest market 
for Mozambican exports. South Africa and Japan are also 
important trading partners. South Africa and Portugal are 
the leading foreign investors. Mozambique does not generally 
use non-tariff barriers to trade. Mozambique is an active 
member of the Southern African Development Community (SADC). 
In March 2005 a U.S.-Mozambican Bilateral Investment Treaty 
(BIT) entered into force. In June 2005 the two countries 
signed a Trade and Investment Framework Agreement (TIFA). 
These two agreements augur well for increased AGOA-related 
trade and investment in the future. 
 
5. The GRM recognizes the importance of removing a number of 
obstacles to private sector development. To this end, steps 
are being taken to reduce the cost of doing business in 
Mozambique, address rigidities in the labor market, and 
improve basic infrastructure. The authorities have taken 
further steps to lower the cost of doing business by 
establishing "one-stop shops" for business registration in 
another four locations (Cabo Delgado, Tete, Inhambane and 
Nampula) that are expected to be in operation by the end of 
2005. Business licensing procedures are being changed so as 
to bring a larger share of small and medium enterprises into 
the formal registration system. The first step was taken in 
2004, with the simplification of licensing procedures. 
However continued work is needed to streamline company 
registration processes and to share information about 
regulations and procedures between the private sector and 
government agencies. The GRM has worked with the private 
sector to improve intellectual property rights protection, 
but has little ability to investigate crimes or enforce IPR 
laws. 
 
Poverty Reduction 
----------------- 
6. Illiteracy and infant mortality rates in Mozambique remain 
among the highest in Africa. Life expectancy is 46 years 
and, as a result of AIDS, is expected to decline into the 30s 
by 2010. The country also lacks infrastructure, power, and 
clean water for most of its citizens. The GRM has placed 
poverty alleviation at the head of its policy agenda. 
Mozambique has made tangible progress in this area, reducing 
poverty rates from 69 percent in 1996 to 54 percent in 2004. 
Its Plan for the Reduction of Absolute Poverty (PARPA) 
emphasizes six areas as key reducers of absolute poverty: 
education; health; basic infrastructure; agriculture and 
rural development; good governance; and macroeconomic and 
financial management. PARPA II, covering the period 
2006-2010, will commence in February 2006. The donor 
community funds approximately 50 percent of the national 
budget, though the HIPC and Enhanced HIPC (Heavily Indebted 
Poor Countries) debt relief programs have permitted increased 
budgetary support to alleviate poverty by making long-term 
investments in health, agriculture, basic infrastructure, and 
education. 
 
Democratic Consolidation/Rule of Law/Corruption 
--------------------------------------------- -- 
7. Mozambique has made significant progress in the 
consolidation of democracy since the signing of the 1992 Rome 
Peace Accord that ended sixteen years of civil war. 
Mozambique has a democratically elected government. In 
December 2004 Armando Guebuza, secretary-general of the 
ruling Frelimo party, was elected president with 64 percent 
of the vote, compared to 32 percent for his nearest 
competitor. The election was generally considered free and 
fair, but was marred by some irregularities, which did not 
affect the outcome of the presidential election or control of 
the national assembly. The political opposition retains 36 
percent of seats in the national assembly and holds five 
mayorships, including that of Beira, the nation's 
second-largest city. 
 
8. Though President Guebuza has repeatedly emphasized his 
desire to wage a serious campaign against corrupt government 
practices, corruption continues to undermine Mozambique's 
democratic consolidation and economic growth. In 2004 the 
National Assembly passed a new Anti-Corruption Law, aimed at 
curbing corruption in government offices, the police force, 
hospitals and the schools. In August 2005 the Attorney 
General formally announced the creation of the Central Office 
for the Combat of Corruption (GCCC), which replaced the 
Anti-Corruption Unit (UAC) as Mozambique's primary corruption 
fighting office. Unlike the UAC, the newly established GCCC 
functions as an autonomous unit under the Attorney General's 
Office, with its own state budget and authority to hire 
additional permanent full-time prosecutors and investigators. 
Mozambique's judiciary continues to be under-trained, 
understaffed and susceptible to pressure from high-ranking 
government officials and bribery by private parties. However 
in recent years the number of trained attorneys and judges in 
Mozambique has risen dramatically, giving hope for a more 
professional judiciary in the future. 
 
Workers Rights 
-------------- 
9. The Constitution provides that all workers are free to 
join or refrain from joining a trade union, and workers enjoy 
these rights in practice. Labor unions, created during the 
socialist years, remain weak and lack resources. The 
Organization of Mozambican Workers (OTM-Central Sindical), an 
umbrella organization for 13 trade unions representing 1,470 
companies, reports just over 94,000 union members among its 
affiliates. The smaller Confederation of Free, Independent 
Trade Unions (CONSILMO), representing four trade unions, has 
approximately 57,000 unionized members. Mozambique's labor 
law, currently under revision with a draft targeted for late 
2005 or early 2006, is very rigid. Although labor unions are 
exerting significant pressure on the government to keep many 
of the law's provisions, the private sector is pushing for 
more flexible legislation to promote increased investment. 
In 2005 the GRM increased the country's statutory minimum 
wage by 14 percent, slightly above the 2004 inflation rate. 
 
Human Rights and Child Labor 
---------------------------- 
10. Mozambique does not engage in gross violations of 
internationally recognized human rights, though there remains 
room for improvement and abuses do occur. Child labor 
remains a problem in Mozambique. A 2003 study estimated that 
one-third of children between ages 10 and 14 were 
economically active. This is largely the result of children 
working in the informal sector due to non-existent 
educational opportunities, rather than children being used as 
laborers in the formal industrial sector, something that 
rarely happens. Mozambique has ratified ILO convention 105 
on forced labor and ILO convention 182 on the worst forms of 
child labor. 
 
Recommendation 
-------------- 
11. Post strongly believes that the progress made by 
Mozambique in its economic and political policies further 
solidifies its qualification for AGOA benefits. Post is 
confident that this positive trend will continue, especially 
as Mozambique benefits economically from higher levels of 
international trade and foreign investment. Mozambique's 
trade posture should also improve as it deepens bilateral 
trade ties with the United States under the recently signed 
BIT and TIFA. 
La Lime