Mozambique: 2008 AGOA Eligibility Review

UNCLAS MAPUTO 001173

SIPDIS

SIPDIS

AF/S FOR MSHIELDS
AF/EPS FOR JPOTASH
USTR FOR CHAMILTON

E.O. 12958: N/A
TAGS: ECON ETRD MZ
SUBJECT: Mozambique: 2008 AGOA Eligibility Review


Country: Mozambique
Current AGOA Status: Eligible

Country Background Summary: Between October 2006 and
October 2007 the Government of the Republic of
Mozambique (GRM) continued 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
deepen its trade ties with the United States under the
Bilateral Investment Treaty (BIT) and Trade and
Investment Framework Agreement (TIFA).

Comments on Eligibility Requirements


I. Market-based Economy


A. Major Strengths Identified
Q 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.
Q Mozambique's decade-long commitment to sound
macroeconomic policies and structural reform,
supported by substantial donor assistance, has led to
a significant improvement in economic performance.
Q GDP growth between 1995 and 2005 averaged 8.4%,
with the growth rate in 2006 estimated at 8.5% by the
World Bank, up from 6.2% in 2005 (final). The average
GDP growth rate for 2005 through 2009 is currently
projected to be 7.3%.
Q The World Bank reports Mozambique's Inflation
(GDP deflator) in 2006 at 13.2%, up from its final
estimate of 11.1% inflation in 2005.
Q Mozambique encourages foreign direct investment,
and CPI, the government's Investment Promotion Center,
actively assists potential new foreign direct
investors in Mozambique.
Q Foreign investors participated without
significant impediments in Mozambique's privatization
program.
Q Private investors continue to manage and
rehabilitate the main ports of Maputo, Beira, Nacala
and Quelimane through concession agreements.
Q The Nacala Corridor Development project, in
which two U.S. firms have a significant holding,
continued operating and rehabilitating the railroad
and port system on a key transport route between
Malawi and Mozambique. This project is supported by
an OPIC loan worth US$30 million.
Q The Brazilian Companhia Vale do Rio Doce (CVRD)
finished exploration of its concession area, a massive
coal deposit in the Moatize region of central
Mozambique, and finalized its contract for extraction
rights with the GRM in 2007. CVRD anticipates that
extraction and exportation will begin in late
2007/early 2008. The project is also expected to
result in the construction of a coal-fired power
plant, with the bulk of the electricity exported to
South Africa.
Q Mozambique retained its international credit
rating of B/B+ by Fitch Ratings, reflecting
Mozambique's positive track record on economic
reforms, political stability, strong economic growth,
openness to FDI, and expanding exports. The most
recent rating was published in May 2007.
Q Although small, the vast majority of Mozambique's
exports to the US enter under either AGOA or GSP.
Mozambique's 2006 exports under AGOA and GSP
provisions were valued at US$11.8 million, up from
8.35 million in 2005. Goods exported under AGOA and
the GSP provisions represented more than 75% of the
country's total exports to the United States.
Q Numbers from the first three quarters of 2007
suggest that Mozambique's 2007 exports under AGOA and
GSP provisions will be comparable to recent years.
Q South Africa is Mozambique's single largest
trading partner. The EU is a significant market for
Mozambican exports.
Q In 2006 the top ten foreign direct investors
in Mozambique were South Africa, Mauritius, the United
Kingdom, Ireland, Portugal, Malawi, the United States,
India, Zimbabwe and Germany.
Q Mozambique is an active member of the Southern
African Development Community (SADC).
Q In October 2006, the Mozambican government and
USTR held the first Trade and Investment Council
meeting under the Trade and Investment Framework
Agreement signed in June 2005. The continuing
bilateral dialogue bodes well for increased
AGOA-related trade and investment in the future.
Q 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.
Q The "one-stop shops" for business registration
were expanded to eleven locations, covering all
provincial capitals, in 2006. The government states
an intention to expand these to district-level
capitals, however this has not yet materialized.
A regulation is currently proposed by the GRM to vest

the "one-stop shops" with the authority necessary to
provide the stream-lined services intended.
Q In December 2005 the National Assembly approved
major revisions to the Commercial Code - the result
of a collaborative effort starting in 1998 between the
Mozambican government, the private sector and donors.
Q A revised Labor Law passed Parliament in May
2007 and was promulgated in July 2007. This revision
represents an attempt by the government to address the
rigid labor legislation.
Q A joint private/public sector task force on IPR
had some isolated successes in 2006-2007 stemming the
flow of illegal products into the local market.


B. Major Issues/Problems Identified
Q 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.
Q Continued work is needed to streamline company
registration processes and to share information about
regulations and procedures between the private sector
and government agencies, particularly in the area of
trade facilitation.
Q The GRM has worked with the private sector to
improve intellectual property rights protection via a
joint task force, but continues to have little ability
to investigate crimes or enforce IPR laws; there
remains a lack of coordination between government
agencies and concerns about corruption in the form of
raid tip-offs.
Q Access to capital continues to be a challenge in
the business environment. Private ownership of land
is not allowed in Mozambique. In December 2006, the
GRM approved a modification to urban land-use rights,
allowing for lease period up to 100 years (renewable)
and minimizing restrictions on transferability of
titles. For rural land, the government continues to
grant land- use concessions for periods of up to 50
years, also with options to renew. The land-use
concessions are not allowed to be used as collateral,
making it difficult to obtain financing via the
banking community.
Q Several companies continue to struggle with VAT
reimbursement delays, with the Mozambican government
hampered by income stream and red-tape issues.
Additional work is needed to improve reimbursement
turn-around time and streamline the overall process.
Q There have been some actions take by the GRM
that raise concerns regarding the sanctity of
contracts, particularly concession agreements. This
concern remains moderate; however, the situation
should be closely monitored.
Q While there is improvement in many areas, the
new Labor Law still contains provisions considered
impediments to increased foreign and local investment.

II. Political Reforms/Rule of Law/Anti-Corruption


A. Major Strengths Identified
Q 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.
Q In December 2004 Armando Guebuza, then
secretary-general of the ruling Frelimo party, was

SIPDIS
elected president with 64% of the vote, compared to
32% for his nearest competitor.
Q 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.
Q The political opposition retains 36% of seats
in the national assembly and holds five mayorships,
including that of Beira, the nation's second-largest
city.
Q 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. As of August 2007 the
GCCC had filed 13 new charges of corruption.


B. Major Issues/Problems Identified
Q Though President Guebuza has repeatedly
emphasized his desire to wage a serious campaign
against corrupt government practices, corruption
remains a problem and threatens to undermine
Mozambique's democratic consolidation and economic
growth.
Q Petty corruption by low-level government
officials to supplement low incomes and high-level
corruption by some political elites continues.
Q Corruption largely results from a lack of checks
and balances among the three branches of government,
minimal accountability of elected officials, and a
culture of impunity.
Q Mozambique ranked 99 out of 163 countries on
Transparency International's 2006 Corruption
Perceptions Index.
Q There are no laws providing for the right of
public access to information, and in practice the
government restricted citizens' access to public
information.
Q Mozambique's judiciary continues to be
under-trained, understaffed and susceptible to
pressure from high-ranking government officials and
bribery by private parties and the country suffers
from a shortage of licensed attorneys.
Q Arbitrary arrest and detention continue to
be a problem.
Q Freedom House's Freedom in the World index
ranks Mozambique "Partly Free".
Q Although the GCCC continues to file charges
of corruption, enforcement has been a serious
problem. In August 2007 the Supreme Court refused
to consider 15 corruption cases, with several Supreme
Court justices claiming that the GCCC did not have
Legal authority to prosecute.
Q Excessive use of force at times by security
Forces remains a cause for concern.

III. Poverty Reduction


A. Major Strengths Identified
Q The GRM has placed poverty alleviation at the
head of its policy agenda.
Q Mozambique has made tangible progress in
this area, reducing poverty rates from 69% in 1996
to 54% in 2004.
Q Mozambique's second Plan for the Reduction of
Absolute Poverty (PARPA II),covering the period of
2006-2010, was launched in June 2006. The PARPA II
aims to reduce, by 2009, the percentage of the
population living below the poverty line from 54%
to 45%. The new plan maintains many of the same
priorities of PARPA I, including emphasis on more
training in the education and health sectors,
strengthening good governance, developing basic
infrastructure and improving macro-economic and
financial management.
Q In 2006-2007, the donor community funded
approximately 50% of the national budget. The HIPC
and Enhanced HIPC (Heavily Indebted Poor Countries)
debt relief programs have permitted increased
budgetary support to alleviate poverty, including
long-term investment in health, agriculture, basic
infrastructure, and education.
Q The Millennium Challenge Corporation (MCC)
signed a Compact with Mozambique for $506.9
million in July 2007.


B. Major Issues/Problems Identified
Q Illiteracy and child mortality rates in
Mozambique remain among the highest in Africa. In
2005 the illiteracy rate was estimated at around 55%,
while in 2004, the mortality rate for children under
five was 151.6 per 1,000 children.
Q Life expectancy at birth dropped to just over
40 years (41.9 in 2004),and is expected to continue
to decline into the 30s by 2010 as the result of
HIV/AIDS.
Q The country also lacks infrastructure, electric
power, and clean water for most of its citizens.
Q HIV/AIDS is a growing problem, with infection
rates increasing to a national average of over 16%
of the sexually active population.
Q Education is compulsory through the age of 12,
but enforcement of compulsory education laws is
inconsistent, due to the lack of resources and the
need for additional schools.

IV. Workers' Rights/Child Labor/Human Rights


A. Major Strengths Identified
Q The Constitution provides that all workers are
free to join or refrain from joining a trade union,
and workers enjoy these rights in practice.
Q In 2007 the GRM increased the country's
statutory minimum wage by 13%.
Q Mozambique has ratified ILO Conventions 105
on Forced Labor 182 on the Worst Forms of Child Labor.
Q The Ministry of Labor regulates child labor in
both the informal and formal sectors. Forced and
bonded labor by children is prohibited by law. Labor
inspectors may obtain court orders and use police to
enforce compliance with child labor provisions.
Q Violations of child labor provisions are
punishable with fines ranging from one to 40
monthly salaries at minimum wage. The government
disseminated information and provided education about
the dangers of child labor.
Q There were no reports of political detainees.
Q The independent media were active and the
international media were allowed to operate freely.
Q The law provides for freedom of religion,
and the government generally respected this right in
practice.
Q In 2003, a revised family law was adopted that
increases the status of women.


B. Major Issues/Problems Identified
Q Less than two percent of the workforce was
covered by collective bargaining contracts, in part
due to the very small percentage of the workforce
employed in the formal economy.
Q Labor unions, created during the socialist years,
continue to lack resources, remain relatively weak
and are disengaging themselves from the ruling
party, FRELIMO.
Q 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 or agricultural sectors, including
family farms, rather than children being used as
laborers in the formal industrial sector, something
that rarely happens.
Q Children orphaned by HIV/AIDS are often
forced to work because they are left without any
adult family members to support them.
Q The Government's human rights record
remains poor; although there were some significant
improvements in a few areas.
Q Prison conditions remained life-threatening.
Q Security force members beat and abused detainees.
Q Although the law provides for freedom of speech
and of the press, journalists sometimes practice
self-censorship, and police have been known to harass
journalists.
Q The law generally provides for freedom of
association, although the government imposed some
limits on this right. A government decree regulates
the registration and activities of foreign NGOs.
The registration process for foreign NGOs and
religious groups reportedly involved significant
discretion on the part of government officials
and regularly took several months.
Q Mozambique is ranked a Tier II Watch List
country by the Department's annual Trafficking
in Persons report. Mozambique is a source country
for women and girls trafficked for the purpose of
sexual exploitation. The Government of Mozambique
does not fully comply with the minimum standards
for the elimination of trafficking; however, it is
making some attempts to do so. Mozambique currently
has no law explicitly prohibiting the trafficking
of humans. The trafficking of children for
commercial sexual exploitation and labor remained
a problem.
Q Domestic violence against women is widespread.
There is no law that defines domestic violence as a
crime; laws prohibiting rape, battery, and assault
may be used to prosecute domestic violence, however
there is no legal prohibition against spousal rape.
Q Exploitation of children under the age of 15
and child prostitution remains a concern.


V. International Terrorism/U.S. National Security


A. Major Strengths Identified
Q Mozambique does not engage in activities that
undermine United States national security or
foreign policy interests.
Q The Mozambican government, including the
Central Bank, cooperates with international efforts
to counter terrorist activities.
Q To the extent possible, given its limited
resources, the Mozambican government fully
cooperates on international anti-terrorist efforts.


B. Major Issues/Problems Identified
Q Money laundering activities in Mozambique
continue to be suspected and cause for concern.
Q Although the Mozambican government is committed
to securing its borders, limited resources make this
difficult.
Q Mozambique's approximately 1500 mile coastline
remains largely unprotected and vulnerable to
smuggling, illegal fishing and illegal entry into
the country.

Chapman