Identifier
Created
Classification
Origin
05MAPUTO1313
2005-10-07 10:37:00
UNCLASSIFIED
Embassy Maputo
Cable title:  

MOZAMBIQUE - AGOA ELIGIBILITY REPORT FOR 2006

Tags:  ETRD ECON MZ AGOA 
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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
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.
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