AMBASSADOR'S END-OF-TOUR REPORT

C O N F I D E N T I A L SECTION 01 OF 07 MAPUTO 001007

SIPDIS
DEPT FOR AF/FO, AF/S, AF/RSA
E.O. 12958: DECL: 07/10/2013
TAGS: PREL PGOV EAID EINV MZ HIV AIDS PEPFAR
SUBJECT: AMBASSADOR'S END-OF-TOUR REPORT


Classified By: Ambassador Sharon P. Wilkinson, for reasons 1.5 (b) and
(d)


1. (U) Summary. Bilateral political and economic relations
between the U.S. and Mozambique have improved and deepened.
At a political level, bilateral cooperation is excellent,
with Washington acknowledging the impressive transition to
democracy and the GRM willing to cooperate with the U.S., for
example on Article 98. The Mozambican profile will rise with
the assumption of the AU Presidency in July. On the economic
front, Mozambique is one of the continent's best performers,
albeit from a low base, with the U.S. now poised to take a
larger role in trade and investment. The recent "B"
sovereign credit rating and OPIC engagement enhance the
potential. The country remains dependent on donor support,
where the U.S. takes a leading role. Reduction of absolute
poverty is the priority, and our efforts are focused on
economic growth, limiting the effects of HIV/AIDS and other
diseases, and strengthening governance. The U.S. has also
successfully led the effort to address the landmine problem.
Corruption is one of the greatest threats to continued
progress on the economic and political fronts. The GRM has
taken encouraging action to address the problem, and the U.S.
actively supports these efforts with inter-agency assistance.
Key areas where we need to maintain focus are corruption,
HIV/AIDS, further consolidation of democracy, education and
counter terrorism.


2. (C) Summary continued. 2003 municipal and 2004 national
elections when President Chissano will step down will change
the political landscape. RENAMO will have at least moderate
success in the municipal elections, assuming governing
responsibilities for the first time; the party is not well
prepared for this eventuality. The 2004 races are too
distant to predict, however, both Presidential candidates
face significant hurdles. FRELIMO candidate Armando Guebuza
has credible experience, but must address negative public
association in the perceptions of past corruption and tough
policies during the Samora Machel administration. Voters may
also make the emotional decision that after 30 years of
FRELIMO rule, it is time for a change. The perennial
opposition leader and Presidential candidate, RENAMO Afonso
Dhlakama, lacks credibility, experience, and financing.
Likely third-party candidate Raul Domingos will not win but
could be the swing vote. Regardless of the outcome, the U.S.
will have no difficulty in maintaining the positive
engagement with the government and people of Mozambique that
we have enjoyed to date. End summary.

POLITICAL RELATIONS
===================

3. (U) Political relations between the U.S. and Mozambique
improved and deepened over the last three years. The U.S.
has appropriately acknowledged President Chissano's vision
and personal efforts which have been instrumental in the
transition to a stable multi-party, free-market oriented
democracy. The GRM greatly values this recognition and
high-level attention from Washington, including last year's
Southern African Mini Summit and President Bush's
participation with President Chissano in last month's
Corporate Council on Africa Washington Summit. Examples of
the GRM's commitment to our bilateral relationship include
our recent conclusion of an Article 98 Agreement and GRM
ratification of all 12 UN counter-terrorism conventions.


4. (SBU) On the regional stage, Mozambique has played an
increasingly visible role. Maputo has just successfully
hosted the second African Union (AU) Summit and President
Chissano assumed the AU Presidency for the next year. We
expect the GRM to expand on the active role played during its
chairmanship of the SADC Organ on Politics, Defense and
Security, where Chissano and FM Simao placed Mozambique at
the center of diplomatic efforts in Zimbabwe, Burundi, DROC,
and the Comoros. The AU Presidency will be an ideal forum
for President Chissano to bolster his already high stature as
one of the continent's elder statesman, before retiring from
office in 2004. We expect Chissano will be a forceful
advocate for NEPAD with its inherent focus on good
governance, peer review, and African solutions for African
problems. He is unlikely to speak out publicly against
President Mugabe's policies, leaving that to President Mbeki
and President Obasanjo.

ECONOMIC PERFORMANCE AND INVESTMENT
===================================

5. (U) The economy grew at 8 percent in 2002 and is poised
to remain between seven and ten percent over the next few
years. Inflation fell from over 20 percent in 2001 to nine
percent in 2003 due to a tightening of monetary policy and
the gradual recovery from the devastating 2000 floods. This
growth, the result of sustained reforms and sound
macroeconomic management, as mandated by the IMF and World
Bank, have made Mozambique a viable destination for foreign
direct investment (FDI),particularly in sectors exploiting
the country's vast but largely untapped natural resources.
Confirmation of this positive picture is the "B/B " credit
rating assigned to Mozambique by Fitch Ratings in July 2003


6. (U) Mozambique receives substantial FDI, but, so far,
the U.S. has not been one of the major players. (By 2001
revenues, Mobil Oil is the 12th largest firm in country,
Coca-Cola 13th, with four others in the top 100.) This
situation is set to change. OPIC is providing nearly $30
million for a U.S.-led consortium rehabilitation of the port
and rail facilities and acquisition of the concessions to run
the operations in the Nacala Corridor, a crucial
transportation route linking Northern Mozambique, Malawi, and
Zambia. The efficient operation of the route should engender
substantial investments in areas such as mining and
agriculture. OPIC is also involved in a major eco-tourism
project; eco-tourism is an industry set to boom in Mozambique
and it is a USAID focus area for export-led growth and job
creation. A U.S. construction firm has been contracted to
build a $200million mineral sands project in Nampula
province and a U.S./Norwegian partnership just signed an
agreement to prospect for natural gas in Sofala province.
Several other U.S. investments are also in the pipeline.


7. (U) Mozambique has had moderate success in taking
advantage of AGOA. In 2002, 750,000 garments were exported,
up from a base of none the year before. Last month, the
first-ever exports of top-quality Mozambican prawns arrived
in the U.S. We recently learned of new legislative
initiatives to remove import duties for certain categories of
components for products made in Mozambique.

DEVELOPMENT ASSISTANCE AND DONOR PARTNERS
=========================================

8. (U) Donor partners fund approximately 60 percent of the
national budget through either direct budget support or
through programs and projects designed to supplement
GRM-provided services. About 23 bilateral donors and a
string of smaller partners contribute to the disbursed aid
funds. In addition, 25 multilateral agencies and up to 150
international NGOs/PVOs offer grants, loans, or technical
assistance.


9. (U) USAID and the other donor partners do not operate in
a vacuum in Mozambique. There is a clear trend among donors
in Mozambique to move toward harmonized forms of aid, whether
through budget support or through pooling and sector-wide
approaches. Donor funding for 2002 included budget support
($100 million); sector and pooled support ($100 million) and
other projects ($500 million). Apart from pooling funding
and technical assistance, organized dialogue between donors
and between government and donors illustrates another form of
harmonization and coordination. USAID is an integral part of
this process. With our donor partners, we are encouraging a
greater focus on corruption, and support for conditionality
of assistance in return for policy reform.


10. (U) As the role of USAID has expanded over the last
nearly 20 years, our strategies have been fine-tuned.
USAID's Country Strategic Plan from 1996 to present focused
on increasing rural incomes, making government accountable to
citizens, improving health, and creating a better business
environment. The new strategic plan for 2004-2010 will build
on this experience to create broad-based, rapid economic
growth sustained through expanded capacities and
opportunities. The five strategic objects that will be
utilized to achieve this are increasing rural economic
growth, focusing on labor intensive exports, helping local
government become more democratic, improving health services
for children and reproductive health, and finally working
towards behavior changes which will result in preventing new
cases of HIV/AIDS while also caring for those already
suffering from this disease. With this central and strategic
objectives in mind, USAID stays true to its support of the
GRM PARPA (Action Plan for the Reduction of Absolute Poverty)
as each objective contributes to at least one of the PARPA's
priorities.


11. (SBU) The GRM is, of course, anxiously awaiting
appropriation of the Millennium Challenge Account (MCA)
funds. We fully expect Mozambique to qualify; failure to do
so would be a major blow, given the country's impressive and
sustained policy strides of the last ten years.

HIV/AIDS AND HEALTH
===================

12. (SBU) The Mozambican Government has been an outspoken
advocate in the battle against HIV/AIDS, led by Prime
Minister Mocumbi who heads the National AIDS Council.
(Comment. A European trained physician, Mocumbi last year
ran a strong but ultimately unsuccessful campaign for the
World Health Organization Director Generalship. It is an
open secret that Mocumbi, at ease in the international arena,
is interested in exploring outside job possibilities and
could well end up elsewhere in the international health
field. End Comment.) The GRM is committed to forceful
action and outspoken advocacy as essential to contain and
diminish the infection rate, which is currently 12 percent.


13. (U) The U.S. is actively engaged in the health sector,
both through growing USG programs as well as private
organizations, including the Gates Foundation, Clinton
Foundation, and numerous NGOs. USAID direct assistance has
provided technical assistance, training, and commodities to
improve the public health system and enable key Mozambican
organizations to lead HIV/AIDS prevention. This assistance
has been successful in shifting health service delivery from
international to local institutions, including a revitalized
Ministry of Health (MOH). Similarly, CDC has enjoyed success
in its dealings with the MOH in the implementation of
surveillance of HIV, voluntary counseling and testing (VCT),
and planning, monitoring and evaluation of HIV/AIDS
activities. In calendar year 2004, the CDC Global AIDS
Program (GAP) will begin support to the MOH in the
implementation of prevention of mother-to-child transmission
activities, including the treatment of AIDS patients. The
Department of Labor is funding $900,000 to address HIV/AIDS
in the workplace and Peace Corps works actively in HIV
prevention through classroom instruction and other outreach
programs. In calendar year 2004 they will welcome the first
group of volunteers in the health sector. For all the
efforts and success needs remain high and Mozambique is
poised and eager to participate in President Bush's $15
million Emergency Plan for AIDS Relief.

DEMINING
========

14. (U) Landmines, both from the colonial struggle and the
civil war, have taken an enormous toll on Mozambique, both
economically and socially. The USG, first through DOD ($11.5
million) and for the last 3-4 years primarily through PM/HDP
($10.5 million),has been one of the leading donors helping
the GRM to demine. We have supported numerous demining
projects implemented by RONCO, based in Beira, Sofala
province. Support has also included capacity-building of the
National Demining Institute (IND) and the Mozambican Armed
Forces (FADM) Demining Brigade in the form of training and
equipment. This year, at the request of the GRM, RONCO
completed demining the Sena rail line, a once flourishing
transportation route linking Dondo (near Beira port) to the
Malawi border, which now can be refurbished. This year our
focus shifted from the central provinces to the north, with
$2.5 million in PM/HDP funds going to clear Portuguese-laid
minefields along the border with Tanzania. After more than
ten years of effort, Mozambique is approaching, but not yet
at, the point where the high-impact mine problem will have
been sufficiently overcome. Though we expect funding levels
for Mozambican demining to decrease due to the obvious need
to deal with new mine hotspots like Afghanistan, Iraq and
Angola, we need to stay the course to ensure the completion
of this task, essential for Mozambican development.


15. (U) We are particularly pleased with the work of the
Department of State-funded Quick Reaction Demining Force
(QRDF),also operated by RONCO; we have worked actively to
publicize its successes. QRDF teams, with virtually all
Mozambican deminers, have been successfully deployed to
Sudan, Nigeria, Sri Lanka, and, now, Iraq. While not
deployed, QRDF teams have completed high-priority tasks
inside Mozambique, such as recent power line demining work
that was requested by the Governor of Sofala province. The
effectiveness of the Mozambican teams in challenging
international environments is on source of pride for
Mozambique and an example of our bilateral cooperation.

ANTI-CORRUPTION EFFORTS
=======================

16. (SBU) Corruption is pervasive in Mozambique. It not
only hampers development of trade and investment, but has a
nexus with money-laundering and trafficking in narcotics and
persons. A 2001 survey, funded by USAID and carried out by
the local civil society organization, ETICA, showed that 66
percent of respondents had paid or been solicited for a bribe
by a public official in the prior six-month period. This
had never been done before in Mozambique, and was a useful
tool for opening public discussion of corruption. Conflicts
of interest for senior public officials are common, where
they use public office to benefit private business interests.
Prosecutions for corruption-related offenses are still rare.
The assassinations of investigative journalist Carlos
Cardoso and bank official Antonio Siba-Siba Macuacua, both
linked to corruption at failed banks in which the government
exercised significant control, have galvanized public opinion
against corruption.


17. (U) The appointment of a new Attorney General, Joaquim
Madeira, a former Supreme Court Justice, signaled a
noticeably stronger official stance against corruption.
Madeira shocked the political establishment in his 2001
parliamentary address, promising to take strong action
against corruption. He fired members of his own staff,
forced the removal of judges, and created a specialized
anti-corruption unit to pursue corruption cases. With USAID,
INL and other funding, we have actively supported this unit,
renovating offices, donating equipment, and providing
extensive training, FBI courses and OPDAT advisor visits.
This unit is an increasingly important anti-corruption
player. Its resources are dwarfed by the scale of the
problem, and we plan continued and expanded support for it.
In addition to the work with the anti-corruption unit, we
have built a constructive relationship with the National
Police Academy (ACIPOL),supported by INL funds, where we
expect that enhancing law enforcement capacity, beginning
with fresh recruits, will in the long run strengthen
anti-corruption efforts. A measure of success is the request
for training from the Director of Customs, one of the most
corrupt organizations in Mozambique.


18. (C) The highly publicized Cardoso trial, which many
thought would never happen, was a watershed in the fight
against corruption, but it was only an initial step. Those
implicated in ordering the assassination, including President
Chissano's son, have yet to be brought to justice. Other
high-profile cases are also pending. Perception of
widespread corruption among the political elite in Maputo is
one of the areas where FRELIMO is most vulnerable heading
into upcoming elections. RENAMO and the smaller opposition
parties harp constantly on corruption, but many sanguine
observers believe that, if in power, RENAMO would also be
plagued by corruption.

THE POLITICAL FUTURE
====================

19. (C) Municipal elections, scheduled to be held in
November 2003, will mark a new phase in Mozambican democracy
when, for the first time, some RENAMO candidates should find
themselves in governance positions. No scientific polling
exists in Mozambique, but based on our own up-country travel
and 1999 election results, we expect RENAMO to win
approximately 15 of the 33 races. FRELIMO should retain all
10 municipalities in the three southern provinces and most in
the traditional northern strongholds of Cabo Delgado as well
as Niassa. However, RENAMO should have a strong showing in
the central provinces of Sofala, Manica, Zambezia, and Tete,
as well as the five municipalities in Nampula. Though
municipalities do not yet play a large political or economic
role in a still very centralized Mozambique, RENAMO gaining
at least some power will have the symbolic importance of
shattering the myth of FRELIMO invincibility.

20. (C) To some extent, the municipal election outcomes
will be harbingers of the December 2004 national elections.
While we believe the 2004 elections are FRELIMO's to lose, we
are not yet ready to call the winner. With only one year
between the contests, a particularly strong showing by RENAMO
in the municipal contests, perhaps a better than expected
showing in the north and central and/or a win in a
traditionally FRELIMO stronghold in the south, would be a
strong indicator of Mozambicans' desire for change at a
national level. Conversely, FRELIMO holding RENAMO to ten or
fewer municipalities in their traditional central strongholds
would bode well for FRELIMO's chances in 2004.

PARTY LEADERSHIP
================

21. (C) FRELIMO Secretary General and Presidential
candidate Armando Guebuza is known as a decisive, capable
leader. He has impressive government credentials as a former
Minister of Interior, Minister of Transportation, and
parliamentary leader. He has been one of FRELIMO's most
forceful backers of free market structural reforms and in the
90s became one of the country's wealthiest and most
successful businessmen. However, Guebuza faces several
electoral challenges. Foremost are the rumors of corruption,
both from shenanigans during the privatization of government
companies as well alleged involvement in other illicit
activities. We expect Guebuza will make cracking down on
corruption a top campaign priority to counter this image. He
has already given indications of this in public and private
gatherings. Though engaging on a personal level, Guebuza is
less charismatic than Chissano. Also, regional equities may
work against him. Though born in Nampula to a northern Makua
mother, Guebuza is much more closely associated with the
south, having a southern father and having been raised in
Maputo. The perception in the central and northern regions
is that the south has received the lion's share of
development resources, and another southerner (like Chissano
and Machel) would only continue this pattern.


22. (C) RENAMO leader Afonso Dhlakama also faces
challenges. First, there is a credibility issue, as both he
and his party lack any governing experience. Also, RENAMO
lacks the financial resources to wage an effective campaign.
FRELIMO controls the government apparatus and patronage which
it will fully use to its advantage. RENAMO has yet to
articulate an election strategy or platform. After more than
ten years in Maputo, Dhlakama has earned an image of
perennial opposition leader, living the life of leisure in
Maputo, increasingly out of touch with his rural base in the
central region. Nevertheless, he has enormous name
recognition and will draw support not only from diehard
RENAMO backers, but also from disenchanted FRELIMO members
and, potentially, new voters.


23. (C) A huge unknown for the 2004 presidential and
legislative contest is what role former RENAMO number two
Raul Domingos will play. Domingos, on track with what he has
told us over the last year, is on his way to forming his own
political party. Still a member of the National Assembly,
Domingos remains in the public spotlight, and he has been
traveling extensively throughout the country. Based on our
travels, the presence of the NGO Domingos founded, IPADE,
particularly in Tete and Manica provinces, has been notable.
However, IPADE is very weak or non-existent in other parts of
the country. How much support Domingos and his party would
have at a national level is unclear, but we do not seeing him
getting more than 5-10 percent of the vote. A Domingos
candidacy is likely to play a spoiler function. Though
Domingos could conceivably take some votes from FRELIMO
members unhappy with corruption and other problems, Dhlakama
is the more likely victim of a Domingos run. Dhlakama's
autocratic style and perceived distancing from his rural,
grassroots support could cost him votes. Also, an ethnic
split is conceivable, with Senas abandoning Ndau Dhlakama for
fellow Sena Domingos. The source of Domingos' funding, for
IPADE and his future party, is unclear. RENAMO leadership
and media outlets have insinuated that FRELIMO is backing
Domingos in order to split the opposition, a charge not
without some plausibility.

PLAYERS IN A GUEBUZA OR DHLAKAMA ADMINISTRATION
============================================= ==

24. (C) Regardless of who wins in 2004, most of the
interlocutors Washington and the Mission have come to know
well will change. Under Guebuza, we would expect to see most
Chissano-appointed ministers gone, certainly Prime Minister
Mocumbi, Foreign Minister Simao, Finance Minister Diogo,
Transport Minister Salomao, Health Minister Songane and
Agriculture Minister Muteia, and possibly Industry and
Commerce Minister Morgado. Possible holdovers are Mineral
Resources and Energy Minister Langa and Defense Minister Dai,
Guebuza's brother-in-law, though with different portfolios.
Prominent governors from Sofala, Nampula, and Cabo Delgado
could also turn up as ministers.


25. (C) Though they are unlikely to take a cabinet or
otherwise public position, influential FRELIMO members will
continue to play crucial policy roles behind the scenes.
First on this list is President Chissano, who will remain
head of FRELIMO. Other major players in FRELIMO's central
committee, including Alberto Chipande and Rafael Maguni
(respectively Ministers of Defense and Information under
Samora Machel),will likewise continue behind the scenes.
Another major player, and a potential 2009 Presidential
candidate, is Graca Machel, Samora Machel's widow and the
current wife of Nelson Mandela.


26. (C) A Dhlakama victory would bring many challenges for
RENAMO. One of the first would be coming up with capable, if
not experienced, personalities for key positions. Dhlakama's
autocratic style has driven out major players such as
Domingos and former RENAMO Secretary General Joaquim Vaz.
Dhlakama has continually given us the encouraging message
that technocratic-level public workers would be retained.
But the sheer number of political-level appointments required
- Minister, Vice Minister, National Directors at 22
ministries, governors, and Ambassadors - dwarfs such
assurances. In their meeting following his May 2003 U.S.
visit, Dhlakama told the Ambassador that a committee of 44
individuals already existed, drawn from business and
academia. Presumably, political appointees would be drawn
from this group. RENAMO's relationship with its Electoral
Union (UE) coalition partners remains fractious. However,
ultimately we would expect to see small party leaders, many
of whom provide the intellectual backbone of the opposition,
take on important portfolios. Attorney Maximo Dias of MONAMO
and engineer Lutero Simango of PCN fall into this category.
We would expect no current FRELIMO ministers to participate
in a Dhlakama administration in any way.


27. (C) Should RENAMO win in 2004, an orderly political
transition would demonstrate the solidity of Mozambican
democracy, specifically FRELIMO's commitment to it. A
graceful loss would confirm its own self-proclaimed
commitment to democracy and peace. While a RENAMO win might
be a good democracy story, it would certainly make for
difficult times in Mozambique. On policy, RENAMO would
likely continue the positive reforms of FRELIMO and perhaps
move closer to U.S. position in other areas (e.g., allowing
land ownership, support for the U.S. in Iraq, a harder line
on Mugabe, etc.). However, the expected disarray of a
Dhlakama administration, at least initially, would require
not only patience but significant additional support.
Implementation of our myriad assistance programs would be
extremely challenging, especially if FRELIMO-aligned
technocrats were replaced with less experienced or
unqualified RENAMO functionaries.

WHAT THE USG SHOULD FOCUS ON
============================

28. (U) The FY-05 MPP lays out the Mission's overall key
objectives. There are several areas in particular the USG
should concentrate its efforts. One is elevating the policy
dialogue on corruption. Failure to win this battle could
derail all the other important economic reforms Mozambique
has implemented, and reduce foreign investment incentives
needed to generate economic growth. For significant poverty
reduction, Mozambique must reduce red tape and other
barriers. Continued USG support for the HIV/AIDS battle is
crucial to staunch, then reverse, the ravages of the
pandemic. Finally, though Mozambique has been a model for
the transition to democracy, we should not lose sight of just
how young the democracy is. Beyond just election monitoring,
we should continue efforts to consolidate the gains made. A
foreseeable need is governance training for new RENAMO
leaders.

WHAT WE SHOULD FOCUS ON IF WE HAD EXTRA $$$
===========================================

29. (C) Needs in Mozambique are enormous, but there are two
areas where additional resources could mostly usefully be
applied. The first area is counter-terrorism. The GRM is
fully cooperative at the political level, and the Mission
actively engages with police, military, banking, and
diplomatic contacts. We fully participate in training
opportunities such as ILEA. However, major resources are
needed to help the GRM address the many weaknesses that
include a large Muslim population that is extremely poor and
vulnerable to outside influence, notoriously porous borders
with all its neighbors, a 1500-mile unpatrolled coastline for
which the GRM has zero monitoring capacity, and a severely
limited response ability in the event of a terrorist attack.
The GRM's heavy dependence upon South Africa and the Indian
navy for security during the AU Summit bore witness to these
weaknesses.


30. (U) The second is education, which, though part of
Peace Corps' stock and trade, has not been a major focus of
the USG. The lack of human capacity is a serious limiting
factor we consistently encounter in all sectors. Many
Mozambicans, in and out of government, are well-trained,
English-speaking and competent, but that expertise is
extremely thin. While we have successfully cultivated
Mozambican institutions of higher education through linkages,
Fulbright, etc., there remain innumerable opportunities for
meaningful assistance in secondary and university education,
in addition to girls' education at the primary level.
WILKINSON