SCENE-SETTER FOR VISIT OF DEPUTY SECRETARY MOSELEY

UNCLAS SECTION 01 OF 03 MAPUTO 000173

SIPDIS
STATE FOR AF/S TREGER
STATE PASS TO USAID FOR AFR/SA - DMENDELSON
USDA FOR SPECIAL ASSISTANT TO UNDER SECRETARY BOST - KPOOLE
PRETORIA FOR AG ATTACHE - SREYNOLDS, RBICKFORD
MBABANE FOR DSDORSEY
USDOC FOR RTELCHIN
SENSITIVE
E.O. 12958: N/A
TAGS: PREL KHIV ECON ETRD MZ EAGR
SUBJECT: SCENE-SETTER FOR VISIT OF DEPUTY SECRETARY MOSELEY
TO MOZAMBIQUE

REF: A. 04 Maputo 1001

B. 04 Maputo 1183

C. 04 Maputo 1645
Sensitive but Unclassified Handle Accordingly. Not for
Internet Distribution.


1. (SBU) Introduction and Summary: Your visit to Mozambique
will provide an opportunity to gain a better understanding
of IBFAN-funded Reencontro's activities on infant feeding
feeding and nutrition in Mozambique, the U.S. contribution in the
fight against HIV/AIDS under the President's Emergency Plan
for AIDS Relief, food security, and agriculture. You are
arriving just after a new government has been inaugurated.
This message provides background on the political
environment, trade and investment, HIV/AIDS, nutrition, and
agriculture. End Introduction and Summary.

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MOZAMBIQUE AND DEMOCRACY
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2. (SBU) Mozambique is rightly considered 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 on stabilization and
democratic development. FRELIMO has been the ruling party
in Mozambique since independence. FRELIMO's former military
opponent, RENAMO, has been the main opposition party. In
November 2003 Mozambique held municipal elections, which
resulted in a major win for the ruling party, FRELIMO, and
were generally regarded as free and fair. In December
2004, Mozambique held its third multi-party presidential
and legislative elections since independence. Armando
Guebuza, the FRELIMO candidate, won the presidency by a
wide margin, and FRELIMO candidates won most of the seats
in the National Assembly. Although the elections were
marred by irregularities, they were not significant enough
to affect the outcome of the presidential election or
control of the National Assembly (Ref A). Guebuza replaced
Joaquim Chissano as President of Mozambique on February 2,

2005. Guebuza announced his cabinet on February 3, 2005.

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A WORD ON NEWLY-ELECTED PRESIDENT GUEBUZA
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5. (SBU) Although Guebuza reportedly is more nationalistic
and less flexible than Chissano, he has indicated recently
that he is likely to continue current government policies.
During his 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 would honor commitments with donor
communities and international financial institutions
(IFIs). A businessman himself, as a result of his party
and government positions, Guebuza has a good understanding
of business and economic concerns and has close ties to the
private sector community. Guebuza has, on occasion, called
for the "Mozambicanization" of businesses (Ref B),which
has sparked some concern among foreign investors both
existing and potential. Guebuza acknowledges the extensive
US commitment to helping Mozambique overcome the challenges
of poverty and HIV/AIDS. He comes across as serious,
intelligent, and disciplined.

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THE STATE OF ECONOMIC AFFAIRS
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6. (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 1992 (when
a devastating civil war was 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
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.


7. (U) Maintaining this high rate of growth hinges on
several major foreign investment projects (aluminium,
natural gas),continued economic reform, and the growth of
the agriculture, transportation, and tourism sectors.
The inflation rate for 2004 was around 11 percent, in line
with the levels of recent years.


8. (SBU) The Mozambican business climate needs improvement.
Generally sound macroeconomic policies and 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 title is granted in the form of leases;
private ownership of land is not allowed. 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. Although
reform is moving in the right direction, it will take
several years before significant impediments to investment
are removed. Mozambique's road network is quite limited
and in poor condition along many stretches, although major
repair work is underway.

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COMMERCIAL OPPORTUNITIES AND MEGA-PROJECTS
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9. (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. 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 enters into
force on March 3, 2005.


10. (U) Several mega-projects, funded by outside investors,
are important contributors to Mozambique's rapid economic
growth. These enterprises include the MOZAL aluminum
smelter (an Australian investment),the newly inaugurated
SASOL gas pipeline (South Africa),and soon-to-be
operational mining and heavy sands projects in Gaza and
Nampula Provinces (Australia and Ireland). The GRM works
closely with large investors by creating government-
investor task forces to address concerns about working in
the Mozambican business environment. The GRM is very
responsive to these investors and has created several
"special economic zones" and "export processing zones,"
some located in poor and under-developed areas.
Mozambique's mega-projects account for 2-3 percentage
points of the country's GDP growth and a much larger share
of its export growth.

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THE FIGHT AGAINST HIV/AIDS
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11. (U) HIV/AIDS prevalence in Mozambique has risen from
3.3 percent 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. Current rates of
high-risk behavior low age of sexual debut, multiple
partners, and low use of condoms in high-risk encounters
suggest that HIV prevalence will not begin to decrease
without stronger prevention programs. The interactions
between nutrition, food security and HIV/AIDS are evident
in Mozambique. Eleven million people live in poverty; a
significant number of households are continuously at risk
of food insecurity; and Mozambique is prone to natural
disasters suffering severe drought and floods in recent
years. HIV/AIDS is yet another shock that contributes
directly to the vulnerability of households resulting in a
breakdown in coping strategies and reducing resilience. The
nutritional status of the population is precarious.
Findings from the 2003 Demographic and Health Survey (DHS)
indicate that 41 percent of children under the age of five
are stunted. Stunting rates are particularly high among
maternal orphans. While wasting rates overall have declined
in recent years, prevalence of wasting is high in areas
where HIV/AIDS prevalence is high (such as Sofala
province). The proportion of severe wasting is
significantly inflated in high prevalence areas reflecting
the impact of pediatric AIDS. While the infant mortality
rate has declined in the past six years, it remains high at
101/1000. USAID's Health, HIV/AIDS and Agriculture Teams
are working together to develop strategies and
interventions that address the nutrition and food security
problems facing individuals infected by HIV and families
and communities affected by HIV/AIDS. In particular, the
prevention of mother to child transmission (PMTCT) programs
funded by the President's Emergency Plan for AIDS Relief
are focusing on improving infant feeding and nutrition
policies, strategies and interventions for HIV positive
mothers. However, people living with HIV/AIDS and orphans
face serious difficulties in securing adequate food
supplies.

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AGRICULTURE IN MOZAMBIQUE
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12. (U) It would be impossible to address the problems of
poverty and malnutrition in Mozambique without addressing
agricultural development and growth, given that more than
80 percnet of the population is engaged in agriculture.
Small family farms using traditional farming methods
produce the majority of agricultural output. Farming
technology has changed very little over the past few
decades, yet comparisons with neighboring countries show
that there is substantial potential for improvement in
yields and outputs, even within the bounds of traditional
technologies. Very few Mozambican farmers have regular
access to new improved varieties of major crops. Few
smallholder farmers are using improved quality seeds of
adapted varieties. Use of commercial fertilizers is one of
the lowest in the world, and many farmers do not yet employ
basic yield-enhancing cultural practices such as optimum
spacing and plant density, crop rotation, or conservation
tillage. Few farmers are using animal traction, labor-
enhancing mechanical devices, small irrigation pumps, or
more intensive land-using technologies of relay cropping or
multiple-cropping with agro-forestry.


13. (U) USAID has been working to change this situation
through a range of interventions, including a PL 480 Title
II monetization program that provides the resources for
NGOs to introduce improved agriculture and nutrition
practices to small farmers in four of Mozambique's
provinces. Under its new Country Strategic Plan (2004-
2010),the Mission has refocused food security and rural
income activities to contribute meaningful results to the
President's Initiative to End Hunger in Africa (IEHA).
USAID's Rural Incomes team uses market forces to increase
rural agricultural production and incomes. Northern
Mozambique has benefited from several years of normal
rainfall and is exporting surpluses of maize and other
commodities to neighboring countries. FEWSNET continues to
assist in mitigating against periodic natural disasters.
The 2002-2003 Household Consumption Survey shows absolute
poverty dropping nearly 16 percentage points, from 70
percent to 54 percent, in the seven years since the last
national survey. Our program's successes to date and
lessons learned from direct distribution fully demonstrate
that full monetization has been essential for Mozambique.
USAID funded activities helped the most vulnerable families
produce enough to move from dependency to surpluses that
lead to higher family income. This is a much more
sustainable approach than direct feeding and puts the
responsibility for nutrition in the home.
DUDLEY