MOZAMBIQUE: SCENESETTER FOR PRESIDENT GUEBUZA'S

UNCLAS SECTION 01 OF 05 MAPUTO 000702

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TAGS: KDEM PGOV PREL ETRD ECON MZ
SUBJECT: MOZAMBIQUE: SCENESETTER FOR PRESIDENT GUEBUZA'S
VISITS TO WASHINGTON

REF: A. MAPUTO 692

B. MAPUTO 603

C. MAPUTO 184

D. MAPUTO 150
Sensitive but unclassified. Not for Internet distribution.

Summary and Introduction
--------------

1. (SBU) Newly elected Mozambican President Armando Emilio
Guebuza is one of five African heads of state to visit
Washington on June 13 to participate in a joint meeting with
President Bush. We understand the Department is considering
a separate meeting for President Guebuza with Secretary Rice.
President Guebuza's other meetings on June 13 include a
meeting with US Global AIDS Coordinator Ambassador Tobias,
Millennium Challenge Corporation (MCC) CEO Paul Applegarth,
and USAID Acting Administrator Schieck (Administrator Natsios
will be out of town). Guebuza will return to the Washington
area on June 21-23 as head of the Mozambican delegation to
the Corporate Council on Africa (CCA) U.S.-Africa Business
Summit. The signing of a Trade Investment Framework
Agreement (TIFA) with USTR is planned for June 21 in
Washington. Guebuza will witness the signing by the
Mozambican Minister of Industry and Trade.


2. (SBU) The government of Mozambique is an Article 98
signatory and participates in ACOTA. Mozambique is the only
country receiving MCC and the President's Emergency Plan for
AIDS Relief assistance. Key issues that deserve particular
attention during Guebuza's visits include the December 2004
presidential and parliamentary elections, the signing of a
TIFA, HIV/AIDS, and African peacekeeping and Zimbabwe. This
will be Guebuza's first visit to Washington as the President
of Mozambique, and will provide an opportunity to further
strengthen the USG's close bilateral relationship with this
country. End Summary and Introduction.

2004 General Elections: Frelimo Dominates
--------------

3. (SBU) 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 elections in 1994. In December 2004 Mozambique
held its third presidential and legislative elections.
Guebuza won the presidency by a wide margin, defeating Renamo
leader Afonso Dhlakama (who also ran unsuccessfully in 1994
and 1999). Frelimo won the majority of seats in the National
Assembly as well. Guebuza was sworn in as President on
February 2, 2005.


4. (SBU) Voter turnout in the December 2004 election was
approximately 45 percent, down substantially from the 75
percent turnout in 1999. Although slightly fewer Frelimo
voters cast their ballots than did so in 1999, about half of
the Renamo supporters did not vote. Some analysts attributed
Renamo's poor showing to Dhlakama's late campaign start; his
campaign kicked-off only in the last several months of 2004,
while Guebuza had been crisscrossing the country since 2002.
Others believe many Renamo supporters may have felt cheated
in the very close 1999 election and cynically saw little
point in participating. Local and international observer
groups, including the Carter Center and European Union (EU),
monitored the elections. The European Union declared that
the elections were carried out in a "generally successful and
peaceful" manner. 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 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.


5. (SBU) Frelimo returned to the National Assembly in March
even stronger ) with 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. Since then several of these small
parties have distanced 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
--------------

6. (SBU) Although Guebuza's more nationalistic and less
flexible approach to governing led some to fear a break with
the Chissano era, he has so far continued key Chissano
policies (ref A). In meetings he comes across as serious,
intelligent, and disciplined. During his trip to the United
States in July 2004, where he attended the Democratic
National Convention and met with various U.S. officials,
Guebuza repeatedly said he favored maintaining a strong
bilateral relationship with the U.S. and that he wanted to
work closely with 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.


7. (SBU) A wealthy businessman himself, largely the result of
his party and government positions, Guebuza has a good
understanding of business and economic concerns, and
maintains strong ties to the private sector. On occasion he
has called for the "Mozambicanization" of the economy (Ref
D),which has sparked some concern among foreign investors.
Just what is meant by this, apart from the clear intent to
provide more jobs for Mozambicans, is not yet clear. The
lead commercial association in Mozambique is optimistic that
Guebuza will be more pro-business than his predecessor.
Guebuza has continued where he left off on the campaign
trail, pledging that his administration is serious in its
fight against corruption and bureaucratic inefficiency.


8. (SBU) President Guebuza moved swiftly to set up his
cabinet, naming most of its members one day into his
presidency (ref C). We understand that the highest Frelimo
party body, the 15-member Political Commission, vetted his
choices and that former President Chissano, who is on the
Commission and still wields significant power within the
party, may have insisted on some names. 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. Guebuza appointed six former provincial
governors to ministerial posts, a move that analysts stress
demonstrates that he is serious about economic development in
outlying areas of the country -- a central theme to his
administration's five-year plan. The rest of Guebuza's
cabinet appears to be composed of Guebuza loyalists
relatively inexperienced for their portfolios, though
technically competent deputies remain in all the ministries
(ref A).

Economic Affairs
--------------

9. (U) Mozambique's past macroeconomic reforms and success in
attracting large investment projects have given the country
an average annual GDP growth rate of eight percent from
1994-2004, the highest in Africa over this time period. This
growth is from a very low base; per capita GNP for 2004
registered around USD 290. Foreign direct investment,
exports, and revenue collection all have increased
significantly. Since the late 1990's most of the state
companies have been privatized, with only about one dozen
left in government hands. 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 native managerial class.


10. (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 relief
initiative. The government depends on foreign donors to
finance about 45 percent of its budget, a dependency that is
likely to continue for some time even as the economy
continues to grow.

Investment Climate
--------------

11. (SBU) The Mozambican business climate is improving, yet
Mozambique remains a challenging environment in which to do
business. 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. The labor law is extremely pro-worker and an
impediment to foreign investment, although legal revision of
some policies is underway and may should completed by early

2006. Land title is granted in the form of leases; private
ownership of land is not allowed and land cannot be used as
collateral. 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. Reform is moving in the right direction, yet it will
take several years before significant impediments to
investment are removed.


12. (SBU) Since Guebuza's term began, the Ministry of Labor
and the Ministry of Industry and Commerce have taken some
steps to make it easier for business. Together they have
opened one-stop-shops in each of the ten provinces to
accelerate the process of registering a company. It is still
too early to judge the effectiveness of this initiative, but
it is a welcome sign. A U.S.-Mozambique Bilateral Investment
Treaty (BIT) went into effect in March 2005. At present the
Ministry of Industry and Commerce is reviewing the text of a
U.S.-Mozambique TIFA, which hopefully will be ready for
signature on June 21.


13. (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, premium 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.


14. (SBU) U.S. trade with and investment in Mozambique
remains small. In 2004, the US imported USD 10 million in
Mozambican 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. Other miscellaneous products, such as cashews, shrimp,
and tobacco, are also exported to the U.S. under AGOA. The
newest export success story is Indian Ocean Aquaculture's
(multinational firm) sale of boxed, frozen aquaculture shrimp
to U.S. distributors Tasty Choice and WalMart (ref B). The
BIT may provide further incentive for increasing US
investment, but Mozambique must address a number of the
constraints mentioned above for business to improve rapidly.
A TIFA would provide a venue for addressing these
constraints.

Key Issues
--------------

15. (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.


16. (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 U.S. commitment to helping Mozambique combat the
disease and its effects. Since taking office, Guebuza has
placed capable individuals at the helm of key government
institutions like the Ministry of Health and the National
AIDS Council, but strong statements on his part have been
noticeably absent. With HIV/AIDS affecting an increasing
number of Mozambicans, Guebuza will have to take a more
active role in HIV/AIDS leadership to make meaningful gains
(ref A).


17. (SBU) MCA: Millennium Challenge Corporation
representatives have visited Mozambique on multiple 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 2004. Mozambique submitted a concept
paper to the MCC in late September that is focused on the
private sector and the northern region. There has been some
press coverage, particularly around the MCC visits. The MCC
provided feedback on Mozambique's concept paper in late
November, and a dialogue has been developing since then. An
MCC technical team conducted a working visit in March and is
returning in early June.


18. (SBU) African Peacekeeping: Regional Issues: 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 African
Contingency Operations and Training Assistance (ACOTA)
program. ACOTA began training the first of three Mozambican
Defense Force (FADM) battalions on April 11, 2005 and is
expected to have all three fully trained by April 2006. We
look forward to supporting the GRM to increase its capacity
to contribute to peacekeeping operations.


19. (SBU) Zimbabwe: 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. Guebuza has visited
Zimbabwe since taking office and has refrained from public
criticism of Mugabe.


20. (SBU) Nyati Beach Lodge: The ongoing Nyati Beach Lodge
legal conflict involves an OPIC-supported American
businessman in a dispute over property rights. The
investment group to which the American belongs was issued
rights to Nyati in 2003. On the other side, a Zimbabwean
firm has an apparently shaky claim dating from the mid-1990s.
In late 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,
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 the Guebuza government will 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. Both sides are awaiting the
Supreme Court's decision.


21. (U) Corporate Council on Africa (CCA) U.S.-Africa
Business Summit: President Guebuza will return to the US on
June 21, along with three or four Mozambican ministers and a
Mozambican private sector delegation of 20 individuals
(representing services, construction, agribusiness, seafood,
manufacturing, energy and power, telecom, and
transportation),to take part in CCA's fifth biennial
U.S.-Africa Business Summit in Baltimore. Guebuza is one of
twelve African heads of state who will attend the Summit.
Guebuza's decision to return to the U.S. for such an event is
a testament to the importance he places on the growing trade
and investment relationship between the U.S. and Mozambique.
Guebuza plans to attend a TIFA signing ceremony in Washington
with USTR Portman and the Mozambican Minister of Industry and
Commerce Antonio Fernando on June 21. Guebuza will also
travel to Baltimore that day for the opening of the Summit,
where he will address the convention on African agriculture.
He will depart Baltimore on June 23 to return to Mozambique
in time for Mozambican Independence Day on June 25.
La Lime