Identifier
Created
Classification
Origin
07MAPUTO269
2007-03-06 15:16:00
UNCLASSIFIED
Embassy Maputo
Cable title:  

MOZAMBIQUE: Update for 2007 President's Report on

Tags:  ECON EAID EINV ETRD MZ 
pdf how-to read a cable
VZCZCXRO7147
RR RUEHLMC
DE RUEHTO #0269/01 0651516
ZNR UUUUU ZZH
R 061516Z MAR 07
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6936
RUEHLMC/MILLENNIUM CHALLENGE CORP 0170
UNCLAS SECTION 01 OF 03 MAPUTO 000269 

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
AF/EPS FOR JPOTASH
USTR FOR PCOLEMAN
MCC FOR SGAULL

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: Update for 2007 President's Report on
AGOA

Ref: State 22438

--------------------------------------------- ------------
Market Economy, Economic Reform, and Elimination of Trade
Barriers
--------------------------------------------- ------------

UNCLAS SECTION 01 OF 03 MAPUTO 000269

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
AF/EPS FOR JPOTASH
USTR FOR PCOLEMAN
MCC FOR SGAULL

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: Update for 2007 President's Report on
AGOA

Ref: State 22438

-------------- --------------
Market Economy, Economic Reform, and Elimination of Trade
Barriers
-------------- --------------


1. (U) The Government of Mozambique (GRM) continues to work
toward creating an investment-friendly, market-based
economy. Mozambique has one of the most dynamic and
fastest-growing economies in sub-Saharan African, although
the growth is from a very low base and is supported by
substantial donor assistance. MozambiqueQs decade-long
commitment to sound macroeconomic policies and structural
reform has led to significant improvement in economic
performance. GDP growth between 1995 and 2006 averaged
approximately 8 percent, with growth of 7.7 percent in 2005
and 7.9 percent in 2006. (Note: Growth rates are World Bank
estimates. End note.) The GRM expects an average real GDP
growth rate of seven to ten percent over the next five
years, and the International Monetary Fund predicts seven
percent real GDP growth through 2009. Large foreign direct
investment projects, so called mega-projects, helped fuel
the rapid economic growth over the last several years. The
inflation rate for 2006 was 9.4 percent.


2. (U) Although the GRM has privatized most enterprises,
several important sectors remain state-owned through
parastatals, including the national airline, the national
electricity company, the national insurance company and the
national port and rail company. The GRM privatized over
1,200 enterprises between the end of the civil war in 1992
and 2005. Although the period of mass privatization ended
a couple of years ago, private sector involvement in public
enterprises continues via partnerships between parastatals
and private companies. There is some belief that some of
the remaining parastatals may still be sold off, however
when or how this might happen is still unclear.


3. (U) HIPC (Heavily Indebted Poor Countries) and Enhanced
HIPC debt relief provided the GRM with breathing room to
focus efforts on alleviating poverty, a key policy goal.
These efforts received more support in 2005 and 2006, when

the IMF forgave 100% of Mozambique's debt (USD 153 million)
incurred prior to January 1, 2005 under the new
Multilateral Debt Relief Initiative (MDRI).


4. (U) Although Mozambique has successfully eliminated
some trade barriers, many, including non-tariff barriers,
still remain a problem. Mozambique does not use import
quotas, although many consider the often time-consuming and
bureaucratic customs clearance procedures significant non-
tariff barriers. MozambiqueQs trade-weighted average
tariff is now less than nine percent, one of the lowest in
Africa, but duties on imported goods range from zero to 20
percent. Customs also assesses a value-added tax of 17
percent at the time of importation.


5. (U) The GRM remains cooperative on intellectual
property rights (IPR) protection but has little ability and
few resources to investigate crimes or enforce IPR laws.
An ongoing collaborative effort between the private sector
and law enforcement has led to the creation of IPR task
forces. This collaboration seems to be working well and
has addressed a few individual cases of IPR violations.
Despite this progress, IPR issues remain, including the
occasional showing of pirated films on local television
prior to their theater debut.


6. (U) While foreign direct investment is welcome, there
are still many obstacles. Private ownership of land is not
allowed under the Mozambican constitution. According to the
World BankQs 2007 Doing Business Report, it takes an
average of 113 days to start a business in Mozambique. In
the same report Mozambique ranked 140 out of 175 countries
on overall ease of doing business, a three position drop
from 2006. The government and private sector continue to
work with donors to improve the business environment, a key
objective for the United StatesQ mission to Mozambique. In
March 2005 the US-Mozambique Bilateral Investment Treaty
entered into force. In June 2005 Mozambique and the United
States signed a Trade and Investment Framework Agreement
(TIFA),creating an opportunity to further expand the trade
relationship. The first Trade and Investment Council
meeting under the TIFA was held in October 2006 with both
countries reaffirming a commitment to improving the
business environment and increasing economic growth.

MAPUTO 00000269 002 OF 003



-------------- --------------
Rule of Law, Political Pluralism and Anti-Corruption
-------------- --------------


7. (U) Mozambique has a democratically elected government.
In December 2004 Armando Guebuza of the FRELIMO party was
elected president with 64% of the vote. The election was
generally considered free and fair, but was marred by some
irregularities. The opposition retains 36 percent of seats
in the National Assembly and holds several mayorships,
including in Beira, the nation's second largest city.


8. (U) Corruption continues to be a serious problem,
undermining MozambiqueQs democratic consolidation and
economic growth. Senior officials often have conflicts of
interest between their public roles and their private
business interests. Local NGOs and media groups observed
that no corruption cases involving high-profile individuals
have been brought to trial during the Guebuza
administration. Bribery is considered a criminal offense in
Mozambique, and political declarations have been repeatedly
issued denouncing corrupt practices and promising actions
against the guilty. Despite this, investigations rarely
result in convictions unless the accused has relatively
minor influence, and senior officials are seldom, if ever,
investigated. The National Assembly passed an anti-
corruption bill in 2003. This bill was enacted in 2004.
In April 2006 the government launched a National
Anticorruption Strategy; however, a September 2006 report
submitted following a six-month review of the strategy by
18 donor nations stated that there had been "no progress on
implementing the government's anticorruption strategy."
Mozambique is a signatory to the Untied Nations Convention
Against Corruption and the African Union Convention to
Prevent and Combat Corruption.


9. (U) With assistance from USG resources, the government
set up an Anti-Corruption Unit in the Office of the
Attorney General (renamed in 2005 the Central Office for
the Combat of Corruption (GCCC)). This body is charged
with investigating and prosecuting corruption-related
crimes. As one result of its reorganization in 2005, the
office expanded its size by adding more lawyers.
Unfortunately, MozambiqueQs judiciary continues to be
undertrained, understaffed, and reportedly susceptible to
pressure from high-ranking government and FRELIMO party
officials and to bribery by private parties. In October
2006 the Attorney General announced that the GCCC had
forwarded 17 new cases to the courts, in which the state
was robbed of a total of USD 1 million. Mozambique ranked
99 out of 158 countries on Transparency InternationalQs
2006 Corruption Perception Index.


10. (U) Through its Action Plan for the Reduction of
Absolute Poverty, the GRM continues to place the fight
against poverty at the top of its agenda. Mozambique has
made tangible progress in this area, reducing poverty rates
from 69 percent in 1996 to 54 percent in 2004.
MozambiqueQs second Plan for the Reduction of Absolute
Poverty (PARPA II),covering the period of 2006-2009, 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 percent. The latest IMF review
released in February 2006 stated that Mozambique continues
to honor its commitments and to follow its Action Plan. In
2006 donors funded nearly half of Mozambique's national
budget, allowing Mozambique to make significant long-term
investments in health, education and basic infrastructure.
HIV/AIDS continues to present a long-term challenge to
MozambiqueQs poverty reduction and economic goals.

--------------
Labor and Child Labor
--------------


11. (U) The GRM generally respects labor rights, and has
ratified ILO Convention 87 and 98, the right of association
and the right to collective bargaining, respectively. The
Organization of Mozambican Workers (OTM-Central Sindical),
an umbrella organization for 13 trade unions representing
1,470 companies, reports just over 103,000 union members.
The smaller Confederation of Free, Independent Trade Unions
(CONSILMO) represents four trade unions and has
approximately 57,000 members. In 2006 the GRM increased
the countryQs statutory minimum wage by 13 percent,
somewhat above the 2005 inflation rate. Mozambique's

MAPUTO 00000269 003 OF 003


current labor law is very rigid; however a proposed
revision was submitted to the General Assembly in 2006. As
of March 5, 2007, the General Assembly had not yet reviewed
the proposal. The revision was an attempt to address major
labor law issues; what form the final version will take is
still not known.


12. (U) The GRM ratified ILO Conventions 105 and 29 on
forced labor, as well as ILO Convention 182 on the worst
forms of child labor. Despite this, child labor remains an
issue, with approximately 1/3 of all urban children between
the ages of 10 and 14 engaged in the economy Q
overwhelmingly in the informal sector.


Johnson