AGOA ELIGIBILITY REVIEW - MOZAMBIQUE

UNCLAS SECTION 01 OF 06 MAPUTO 000959 SIPDIS DEPT FOR AF/EPS - ANN BREITER AND GABRIELLE MALLORY DEPT PLEASE PASS TO USTR FOR CONNIE HAMILTON E.O. 12958: N/A TAGS: ETRD EAGR ECON PGOV PREL ELAB PTER MZ SUBJECT: AGOA ELIGIBILITY REVIEW - MOZAMBIQUE REF: STATE 85086 ¶1. Per REFTEL, Embassy Maputo submits the following updated AGOA eligibility information. ¶2. Country: MOZAMBIQUE Current AGOA Status: Eligible Country Background Summary: Between October 2007 and October 2008 the Government of the Republic of Mozambique (GRM) continued efforts to establish a market-based economy, eliminate barriers to U.S. trade and investment, reduce poverty, and protect workers' rights. This trend should continue, especially as Mozambique begins to benefit economically from higher levels of international trade and investment, and deepen its trade ties with plans to reinvigorate the Trade and Investment Framework Agreement (TIFA),and negotiate an Open Skies Agreement to liberalize air travel. Comments on Eligibility Requirements: -------------- ¶I. Market-based Economy -------------- ¶A. Major Strengths Identified: ** Mozambique continues to have one of the most dynamic and fastest-growing non-petroleum economies in sub-Saharan Africa, although the growth is from a very low base. ** Mozambique's decade-long commitment to sound macroeconomic policies and structural reform, supported by substantial donor assistance, continues to drive economic performance. ** GDP growth between 1995 and 2005 averaged 8.4 percent, with the growth rate in 2007 of 7.3, down from 8.5 in 2006. The average GDP growth 2008-2009 is currently projected to be about 7 percent. ** Mozambique encourages foreign direct investment, with U.S. investors leading all other countries with FDI of over $5 billion between 2003 and 2007. CPI, the government's Investment Promotion Center, actively assists potential new foreign direct investors in Mozambique. Private sector umbrella association CTA continues to push the government to improve the business climate. ** Foreign investors participated without significant impediments in Mozambique's privatization program. ** Private investors continue to manage and rehabilitate the main ports of Maputo, Beira, Nacala and Quelimane through concession agreements. Over $1 billion in port improvements are scheduled for Maputo, Beira, and Nacala. ** 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 2008. The project will invigorate rail traffic on the Beira corridor, increase volumes at the Port of Beira, and is also expected to result in the construction of a coal-fired power plant, with the bulk of the electricity exported to South Africa. ** 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 September 2008. ** Mozambique's exports to the U.S. in 2007 totaled $5.34 million, of which $825,000 under AGOA, and $95,000 under GSP, down from a 2006 total of $15.5 million, of which $940,000 under AGOA, and $10.8 million under GSP. ** Numbers from the first three quarters of 2008 suggest that Mozambique's 2008 exports under AGOA and GSP provisions will be comparable to last year. ** Mozambique is an active member of the Southern African Development Community (SADC),but is not a member of the Southern African Commercial Union (SACU). ** In October 2006, the Mozambican government and USTR held the first Trade and Investment Council meeting under the MAPUTO 00000959 002 OF 006 Trade and Investment Framework Agreement signed in June 2005. The Minister of Investment and Commerce has recently agreed in principle to a second TIFA meeting in Washington in the first quarter of 2009. The continuing bilateral dialogue could strengthen AGOA-related trade and investment in the future. ** 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. In the 2008 World Bank's "Doing Business" indicators, Mozambique's rank fell by two positions, largely due to accelerated business climate liberalization in competing countries. The private sector and Government have met and identified specific steps that need to be taken to improve the business climate. ** 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. A Special Economic Zone (SEZ) has been developed to boost investment in the Nacala Corridor, and investment is actively sought in the Beira and Maputo Corridors. ** 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. ** 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, but does not sufficiently liberalize restrictive labor practices. ** A joint private/public sector task force on IPR has had some isolated successes in recent years stemming the flow of illegal products into the local market. The Government Intellectual Property Institute (IPI) addresses private sector concerns with intellectual property, patents, and trade mark infringements, working with a variety of ministries, even coordinating search and seizure of counterfeit goods. ¶B. Major Issues/Problems Identified: ** 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. ** The GRM continues to rely on direct donor funding to support approximately 56 percent of its annual budget. The donor community has long pushed for greater transparency and better governance, with slower than hoped-for progress. ** 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. ** 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; counterfeit goods remain commonplace in local markets, and there remains a lack of coordination between government agencies and concerns about corruption in the form of raid tip-offs. ** Access to capital continues to be a challenge in the business environment. Private ownership of land is not allowed in Mozambique, only land tenure, reducing opportunities to collateralize loans and restricting the growth of credit markets, particularly at the small loans and micro-credit level. 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. ** Several companies continue to struggle with value-added tax (VAT) reimbursement delays, with the Mozambican MAPUTO 00000959 003 OF 006 government hampered by income stream and red-tape issues. Additional work is needed to improve reimbursement turn-around time and streamline the overall process. Starting in 2008, the U.S. Treasury's Office of Technical Assistance (OTA) began providing technical assistance to the Mozambican Tax Authority (ATM) in an effort to professionalize and expand the ATM's capacity. ** There have been some actions take by the GRM that raise concerns regarding the sanctity of contracts, particularly concession agreements, with the GRM in some cases requesting to renegotiate in order to secure more favorable terms. This concern remains moderate; however, the situation should be closely monitored. ** 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: ** 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. ** In December 2004 Armando Guebuza, then secretary-general of the ruling Frelimo party, was elected president with 64 percent of the vote, compared to 32 percent for his nearest competitor. ** 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. ** The political opposition retains 36 percent of seats in the national assembly and holds five mayorships, including that of Beira, the nation's second-largest city. ** 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 September 2008 the GCCC has reviewed 406 cases, resulting in 63 charges, with investigations ongoing in 256 additional cases. In September 2008, the Attorney General announced the first high-level corruption case with the arrest of former Interior Minister Almerino Manhenje in connection with the theft of $8 million. ¶B. Major Issues/Problems Identified: ** Though President Guebuza has repeatedly emphasized his desire to wage a serious campaign against corrupt government practices, corruption at all levels of government remains a problem and threatens to undermine Mozambique's democratic consolidation and economic growth. ** 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. ** Mozambique's Transparency International 2008 Corruption Perceptions Index score dropped for the first time in five years from 2.8 to 2.6 (a result of less than 3 indicates corruption is perceived as "rampant"). ** There are no laws providing for the right of public access to information, and in practice the government restricted citizens, access to public information. ** 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. ** Excessive use of force at times by security forces remains a cause for concern. Arbitrary arrest, summary execution, vigilante killing, and detention continue to be a problem. A local NGO reports that the police in and around the capital were involved in 10 summary executions in the first nine months of 2008. MAPUTO 00000959 004 OF 006 ** Freedom House's Freedom in the World index ranks Mozambique "Partly Free". ** Although the GCCC continues to file charges of corruption, enforcement has been a serious problem. Between January and July 2008, Mozambican courts tried and sentenced 31 cases of corruption according to the GCCC, with 27 additional cases pending trial dates, and 45 suspects in detention in connection with the pending cases. -------------- III. Poverty Reduction -------------- ¶A. Major Strengths Identified: ** The GRM has placed poverty alleviation at the head of its policy agenda. ** Mozambique has made tangible progress in this area, reducing poverty rates from 69 percent in 1996 to 54 percent in 2004. ** 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 percent to 45 percent. 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 macroeconomic and financial management. ** In 2007-2008, the donor community funded approximately 56 percent 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. ** The Millennium Challenge Corporation (MCC) signed a Compact with Mozambique for $506.9 million in July 2007, which entered into force in September 2008, aimed at unlocking the economic potential of the poorer northern districts with projects focused on rural and urban water and sanitation, roads, improved land administration, agriculture, and cross-cutting policy reforms and capacity building initiatives. ¶B. Major Issues/Problems Identified: ** Illiteracy and child mortality rates in Mozambique remain among the highest in Africa. In 2005 the illiteracy rate was estimated at around 55 percent, while in 2004, the mortality rate for children for 2008 is estimated at 104.97 per 1,000 children. ** Life expectancy at birth dropped to just over 40 years (41.04 estimated in 2008),and is expected to continue to decline into the 30s by 2010 as the result of HIV/AIDS. ** The country also lacks infrastructure, electric power, and clean water for most of its citizens. ** The standard of living of residents of Maputo is 12 times that of the rest of the country, with the majority of the population living in rural areas. ** HIV/AIDS is a growing problem, with infection rates increasing to a national average of over 16 percent of the sexually active population. ** Education is compulsory through the age of 12, but enforcement of compulsory education laws is inconsistent with children attending school for 8 years on average due to the lack of resources and the need for additional schools. -------------- IV. Workers' Rights/Child Labor/Human Rights -------------- ¶A. Major Strengths Identified: ** The Constitution provides that all workers, except for government employees, are free to join or refrain from joining a trade union, and workers enjoy these rights in practice. MAPUTO 00000959 005 OF 006 ** In 2007 the GRM increased the country's statutory minimum wage for industry and services by 14 percent. ** Mozambique has ratified ILO Conventions 105 on Forced Labor, 182 on the Worst Forms of Child Labor, and 138 on Minimum Wage. ** Forced and bonded labor by children is prohibited by law. ** Compliance with child labor provisions are regulated by the Ministry of Labor and violations are punishable with fines ranging from one to 40 monthly salaries at minimum wage. ** In an effort to reduce child labor, the government disseminated information and provided education about the dangers of child labor. ** There were no reports of political detainees. ** The independent media were active and the international media were allowed to operate freely. ** The law provides for freedom of religion, and the government generally respected this right in practice. ** In 2003 a revised family law was adopted that increases the status of women. ¶B. Major Issues/Problems Identified: ** The government does not effectively enforce protection of worker rights and employers continue to violate labor standards. ** 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. ** Labor unions remain relatively weak due to lack of resources and are disengaging themselves from the ruling party, FRELIMO. ** While there has been an increase in the minimum wage, the minimum wage does not provide a decent standard of living for a worker and family. ** While the law prohibits forced or compulsory labor, forced and bonded child labor remains a problem and is common in rural areas, agricultural work, domestic service, and prostitution. ** Children orphaned by HIV/AIDS are also often forced to work because they are left without any adult family members to support them. ** The Government's human rights record remains poor, although there were some significant improvements in a few areas. ** Prison conditions remained life-threatening. ** Security force members beat and abused detainees. ** Police use of excessive force resulted in unlawful killings and injuries. ** 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, including arrest. In September 2008, three journalists were convicted of defamation and threatening state security for writing an article which questioned the nationality of the Prime Minister. ** 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. ** Mozambique is a source country for women and girls trafficked for the purpose of sexual exploitation and is ranked a Tier II Watch List country by the Department's annual Trafficking in Persons report. The government does not fully comply with the minimum standards for the elimination of trafficking; however, in July 2008, it enacted MAPUTO 00000959 006 OF 006 a law making human trafficking a punishable crime. ** 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. ** 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: ** Mozambique does not engage in activities that undermine United States national security or foreign policy interests. ** The Mozambican government, including the Central Bank, cooperates with international efforts to counter terrorist activities. ** To the extent possible, given its limited resources, the Mozambican government fully cooperates on international anti-terrorist efforts. ¶B. Major Issues/Problems Identified: ** Money laundering activities in Mozambique continue to be suspected and cause for concern. ** Mozambique is suspected to be a transshipment country for human smugglers. ** Although the Mozambican government is committed to securing its borders, limited resources make this difficult. ** Mozambique's approximately 1500 mile coastline remains largely unprotected and vulnerable to smuggling, illegal fishing and illegal entry into the country. Amani