Identifier
Created
Classification
Origin
05MAPUTO232
2005-02-18 10:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Maputo
Cable title:  

MOZAMBIQUE: SCENESETTER FOR VISIT OF ASSISTANT

Tags:  PREL PGOV MZ 
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UNCLAS SECTION 01 OF 05 MAPUTO 000232 

SIPDIS
SENSITIVE
AF/S FOR HERB TREGER, AF/FO
E.O. 12958: N/A
TAGS: PREL PGOV MZ
SUBJECT: MOZAMBIQUE: SCENESETTER FOR VISIT OF ASSISTANT
SECRETARY FOR AFRICAN AFFAIRS CONNIE NEWMAN, MARCH 1-3

SIPDIS

REF: A. MAPUTO 161

B. 04 MAPUTO 1645

C. 04 MAPUTO 1001
Sensitive but unclassified. Handle accordingly. Not for
Internet distribution.

UNCLAS SECTION 01 OF 05 MAPUTO 000232

SIPDIS
SENSITIVE
AF/S FOR HERB TREGER, AF/FO
E.O. 12958: N/A
TAGS: PREL PGOV MZ
SUBJECT: MOZAMBIQUE: SCENESETTER FOR VISIT OF ASSISTANT
SECRETARY FOR AFRICAN AFFAIRS CONNIE NEWMAN, MARCH 1-3

SIPDIS

REF: A. MAPUTO 161

B. 04 MAPUTO 1645

C. 04 MAPUTO 1001
Sensitive but unclassified. Handle accordingly. Not for
Internet distribution.


1. (SBU) Introduction and Summary: Your visit to Mozambique
will give you an opportunity to meet leading members of the
new Guebuza government and convey to the government and the
public our support for Mozambique's development and HIV/AIDS
efforts. You also may wish to encourage continued movement
towards a compact with the MCC and emphasize our concern over
the investment dispute concerning the OPIC-supported U.S.
investor in the Nyati Beach Lodge. It may be useful to raise
with Foreign Minister Abreu regional issues and explain the
importance we place on obtaining rights that will allow us to
acquire a site for a New Embassy Compound. This message
provides background on those issues, as well as on the
political situation and the economy. End Introduction and
Summary.

--------------
FRELIMO DOMINATES POLITICS
--------------

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 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 presidential and legislative elections
were held in 1994. In November 2003, municipal elections
resulted in a major win for FRELIMO and were generally
regarded as free and fair. The following year, in December
2004, Mozambique held its third presidential and legislative
elections. Guebuza won the presidency by a wide margin,
defeating perennial RENAMO candidate and RENAMO president
Afonso Dhlakama. FRELIMO won the majority of seats in the
National Assembly as well. Although the elections were
marred by irregularities, these were not significant enough
to affect the outcome of the presidential election nor alter
the final tally in the National Assembly (Ref B) by more than
two or three seats out of the Assembly's 250. Guebuza was
sworn in as President on February 2, 2005, and announced most

of his cabinet the next day.


3. (SBU) Voter turnout in the December 2004 election was a
disappointing 40 - 45 percent, down substantially from the
nearly 75 percent turnout in 1999. Although slightly fewer
FRELIMO voters cast their ballots than did so in 1999, about
half of former RENAMO supporters did not vote. Some analysts
explain the poor RENAMO showing by saying that Dhlakama began
campaigning too late, only in the last several months of
2004, while Guebuza had been crisscrossing the country since

2002. And some believe many RENAMO backers may have felt
cheated in the very close 1999 election and therefore
cynically saw little point in participating. Several local,
regional, and international observer groups, including the
Carter Center, monitored the elections. The Presidency of
the European Union declared that the elections were carried
out in a "generally successful and peaceful" manner, and
"broadly conducted along the lines of internationally
established standards." 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 National Elections
Commission's 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. An independent parallel vote count that
USAID helped support tracked very closely with the final
results announced by the government.


4. (SBU) FRELIMO will return to the National Assembly in
March with a strong showing -- 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. Recent press reports
indicate several of these small party deputies may distance
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
--------------

5. (SBU) Although Guebuza reportedly is more nationalistic
and less flexible than Chissano, he has indicated recently
that he will continue current government policies, at least
in the near term. During his trip to the United States in
July, where he attended the Democratic National Convention
and met with you and other U.S. officials, Guebuza repeatedly
said he favored maintaining a strong Mozambique-U.S.
relationship and stressed that he wanted to work closely with
donors and 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. A wealthy businessman himself, largely the
result of his party and government positions, Guebuza has a
good understanding of business and economic concerns and
strong ties to the private sector. On occasion Guebuza has
called for the "Mozambicanization" of businesses (Ref C),
which has sparked some concern among foreign investors --
both existing and potential. Just what he means by this,
apart from the clear intent to provide more jobs for
Mozambicans, is not yet obvious. He comes across as serious,
intelligent, and disciplined.


6. (SBU) President Guebuza has moved swiftly to set up his
cabinet; he named most of its members one day into his
presidency. We understand that the highest FRELIMO party
body, the Political Commission (15 members),vetted his
choices and that former President Chissano (who is on the
Commission) may have insisted on some names; more accurately,
then, the cabinet is both Guebuza's and FRELIMO,s. The
cabinet members, according to press reports, in the main are
leaders who will push forward Guebuza's wishes rather than
technocrats, stalwarts in FRELIMO, and many have moved up
from positions as provincial governors. Analysts stress that
the latter attribute demonstrates that Guebuza is serious
about economic development in outlying areas of the country
-- a central theme in his inaugural address. The lead
commercial association in Mozambique is optimistic that
Guebuza will be more pro-business than his predecessor.
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. One surprise
appointment is that of Alcinda Abreu, FRELIMO,s 2004 general
elections campaign manager, as Foreign Minister. Although
considered talented and energetic, she was trained as a
psychologist and has worked on social welfare and women's
issues. She faces a steep learning curve; some believe that
Madeira will be the lead advisor for President Guebuza on
foreign affairs, at least in the near future. We are seeking
meetings with you for both Abreu and Madeira, as well as
President Guebuza and Prime Minister Diogo.


7. (U) Guebuza has appointed a total of 26 ministers and 15
vice ministers; eleven of them are women (seven ministers and
four vice ministers). This compares with a government of 24
ministers and 18 vice ministers under Chissano, eight of whom
(three ministers and five vice ministers) were women.

--------------
ECONOMIC AFFAIRS
--------------

8. (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 1994 (two
years after its devastating civil war 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. 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
managerial class of native Mozambicans.


9. (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 initiative
relief. The government depends on foreign donors to finance
half of its budget, a dependency likely to continue for some
time even if the economy continues to grow.

--------------
INVESTMENT CLIMATE
--------------

10. (SBU) The Mozambican business climate is improving, but
still has a long way to go to meet Western standards.
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. Although
revisions are being considered, the labor law remains
extremely inflexible and an impediment to foreign investment.
Land tenure is granted through leases covering land use; the
Mozambican constitution invests ownership of all national
territory in the State. Donors, including USAID, 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, Mozambique still rates as
'mediocre' on many economic and investment competitiveness
indicators. Mozambique's road network is quite limited and
in poor condition along many stretches, although major repair
work is underway. Much of the countryside lacks electricity.
?

11. (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. 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. 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.


12. (SBU) US trade with and investment in Mozambique remains
small. In eleven months of 2004, the US imported USD 10
million in 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. The newly ratified BIT may provide new incentive for
increasing bilateral investment, but Mozambique must address
a number of the constraints mentioned in para 9 above for
business to improve rapidly.

--------------
KEY ISSUES
--------------

13. (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. Under the first full year of the Emergency Plan
implementation, U.S. agencies supported anti-retroviral
treatment for approximately 5,000 Mozambicans.


14. (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 US commitment to helping Mozambique combat the
disease and its effects.


15. (SBU) Nyati Beach Lodge: The ongoing Nyati Beach Lodge
legal conflict involving an OPIC-supported American
businessman offers a prime example of why Mozambique remains
an unstable environment for potential investors. The upscale
Vilanculos-area resort is the subject of competing land
claims between the American, whose investment group was
issued rights to the Nyati lands in 2003, and a Zimbabwean
firm with an apparently shaky claim dating from the
mid-1990s. In 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,
and police left the lodge, 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 to pressure
the new government to 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, and your visit provides an opportunity to
underscore our concern with the new government.


16. (SBU) NEC: Your visit also provides an opportunity to
emphasize to Foreign Minister Abreu our interest in obtaining
a site for a New Embassy Compound. As Mozambican law does
not allow ownership of land, we will need Ministry approval
for a "bundle of rights" agreement that would give us rights
similar to those provided by land ownership. You can
emphasize to the Minister that without such rights, we would
not be able to make the multi-million-dollar investment,
which incidentally would create many Mozambican construction
jobs. We have identified a site, and once we have a bundle
of rights agreement - we need to present a draft to the
Ministry - we will need to settle on a price and other terms
with the consortium holding the existing concession.


17. (SBU) MCA: Millennium Challenge Corporation
representatives have visited Mozambique on three 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. Mozambique submitted a concept paper to
the MCC in late September that is focused on the private
sector and the northern region. The government entrusted the
CTA, a confederation of business associations and also the
private sector representative on Mozambique's MCA Technical
Group, with the responsibility for drafting Mozambique's
concept paper. Although the CTA and the Mozambique-US
Chamber of Commerce have circulated the concept paper widely,
the government has not yet officially released it. There has
been some press coverage, particularly around the MCC visits,
but as yet no in-depth presentation and analysis of the
concept paper by the media. The MCC provided feedback on
Mozambique's concept paper in late November, and a dialogue
has been developing since then with responses to the initial
feedback now being produced. We understand that the MCC may
visit again to follow up as soon as mid-March.


18. (SBU) Regional Issues/ACOTA: 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 ACOTA program. ACOTA held a
Strategy and Planning Conference in September 2004 and is
planning a follow-up in late February to plan future training
phases. We look forward to supporting the GRM increase its
capacity to contribute to peacekeeping operations, and we
expect to continue our engagement under the Guebuza
administration.


19. (SBU) 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. In his meeting with you
when he visited Washington in July 2004, Guebuza took a
similar line on Zimbabwe as Chissano has.
LALIME