AGOA ELIGIBILITY REVIEW - MOZAMBIQUE

UNCLAS SECTION 01 OF 06 MAPUTO 001145 SIPDIS DEPT FOR AF/EPS - GABRIELLE MALLORY DEPT PLEASE PASS TO USTR FOR CONSTANCE HAMILTON; DEPT OF COMMERCE KEVIN BOYD AND DEPT OF TREASURY ANTHONY IERONIMO E.O. 12958: N/A TAGS: EAGR ECON ELAB ETRD MZ PGOV PREL PTER SUBJECT: AGOA ELIGIBILITY REVIEW - MOZAMBIQUE REF: 09 STATE 97769 ¶1. Per REFTEL, Embassy Maputo submits the following updated AGOA eligibility information. ¶2. Country: MOZAMBIQUE Current AGOA Status: Eligible Country Background Summary: Between October 2008 and October 2009 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. Widespread corruption and weak democratic institutions put poverty reduction and continued economic growth into jeopardy. Comments on Eligibility Requirements: -------------- ¶I. Market-based Economy -------------- ¶A. Major Strengths Identified: ** Mozambique continues to have one of the fastest-growing non-petroleum economies in sub-Saharan Africa. ** Mozambique's 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 of 7.3 percent in 2007 and 6.8 percent in 2008. The 2009 GDP growth rate is currently projected to be about 4.5 percent down from a previous estimate of around 7 percent. ** Mozambique encourages foreign direct investment, with U.S. investors, with FDI of over $5 billion between 2003 and 2007, leading all other countries. ** 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 is investing more than $1.3 billion and anticipates that extraction and exportation will begin in early 2010. The project is expected to invigorate rail traffic on the Beira corridor, increase volumes at the Port of Beira, and is also expected to result in the construction of coal-fired power plants, with the bulk of the electricity exported to South Africa. Three other coal companies are investing in the Moatize / Benga region, including Riversdale, investing more than $300 million. ** In 2008 total exports to the US were $16.4 million, of which $129,000 was under AGOA and $235,000 under the General System of Preferences (GSP). Up to October 2009, total exports were $32 million, with $888,000 under GSP and $0 under AGOA. Approximately half of 2009 Mozambican exports to the U.S. are attributed to a one-time sale of aluminum ingots from the Mozal smelter outside of Maputo. ** 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 Trade and Investment Framework Agreement signed in June 2005. Bilateral dialogue continued in the March 2009 TIFA meeting held in Washington, DC. ** In the 2010 World Bank "Doing Business" indicators, Mozambique's overall rank improved by five positions, due primarily to eliminating minimum capital requirements to start a new business, however most other indicators in the report fell. ** The "one-stop shops" for business registration were MAPUTO 00001145 002 OF 006 expanded to eleven locations, covering all provincial capitals, in 2006. 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. ** 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 more than half of its annual budget. The donor community has long pushed for greater transparency and better governance, with slower than hoped-for progress. The slow progress may delay the disbursement of funds by the donor community. ** 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, 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 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 taken 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 -------------- -------------- MAPUTO 00001145 003 OF 006 ¶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 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 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. ** 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. GCCC is understaffed, and those staffers who have higher education often lack degree in relevant areas such as; law, auditing and accounting. ** A recent, highly controversial decision by the Constitutional Council, characterized by several observers as seriously flawed, confirmed a questionable ruling by the National Elections Commission (CNE) to exclude many opposition parties, whether wholly or partially, from running in the 2009 legislative elections. -------------- III. Poverty Reduction -------------- ¶A. Major Strengths Identified: MAPUTO 00001145 004 OF 006 ** The GRM has placed poverty alleviation at the head of its policy agenda. ** 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: ** In 2007 Mozambique was ranked by UNDP 127 in the Human Poverty Index, and 90 percent of the population lives on less than $2 per day. ** 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, 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. ** 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 MAPUTO 00001145 005 OF 006 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. ** 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. ** Prison conditions remained life-threatening. ** Security force members beat and abused detainees. ** Police use of excessive force has 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. In September 2008, three journalists were convicted of defamation and threatening state security for writing an article which challenged 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 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 a law making human trafficking a punishable crime. ** Domestic violence against women is widespread. In July 2009 Mozambique criminalized domestic violence and sex without consent. Enforcement of the law is weak. ** Exploitation of children under the age of 15 and child prostitution remain a concern. -------------- -------------- ¶V. International Terrorism/U.S. National Security -------------- -------------- ¶A. Major Strengths Identified: MAPUTO 00001145 006 OF 006 ** 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 in international anti-terrorist efforts. ¶B. Major Issues/Problems Identified: ** Money laundering activities in Mozambique continue an increasing cause for concern. ** Mozambique is a transshipment country for an increasing amount of illegal narcotics and 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. CHAPMAN